In a report on Monday, Goldman Sachs is expecting 10-year Treasury yields to rise to 4.40% by the end of 2026 citing a US economy which will continue to stay underpinned.
The firm anticipates US economic growth to hit 2.3% and that will see it keep above the 2% long-term trend. Adding that more robust growth does tend to “steepen the yield curve because you have growth running above its trend rate and then while we do expect the Fed to be cutting, the objective of rate cuts is actually to stimulate the economy”.
Goldman Sachs goes on to note that it would “self-defeating” for the Fed to keep rates at “an abnormally low level” because that would get markets to just simply “steepen the yield curve”.
As a reminder, the steepening in which they are pointing out here is that long-term yields is outpacing short-term yields i.e. wider gap – which often sends a signal of expectation for stronger economic growth down the road.
Well, rising fiscal risks and Trump’s constant attack on Fed independence are also other factors to consider as that would see a premium in wanting to hold US debt. But more simply put, market expectations are also of the view that incumbent Fed chair Powell has already delivered his final rate cut back in December.
It is now on Trump’s appointed successor to Powell to take over and drive a narrative shift. Otherwise, market players don’t seem to be thinking that rate cuts are coming any time soon just yet. So, there’s that as well.
Still, traders are pricing in at least two rate cuts for the whole of 2026. That being said, it’s still early in the year and these odds tend to move around quickly based on macro developments
