tl;dr
Goldman Sachs strategists have lowered their 2025 US Treasury yield forecasts, expecting the Federal Reserve to cut interest rates earlier than previously thought, with two-year and 10-year yields projected at 3.45% and 4.20%, down from 3.85% and 4.50%. They now anticipate multiple rate cuts in late...
Market strategists at Goldman Sachs have lowered their forecasts for US Treasury yields, anticipating that the Federal Reserve will begin cutting interest rates sooner than initially expected. According to analysts including George Cole, the two-year and 10-year yields are now projected to end 2025 at 3.45% and 4.20%, respectively, down from earlier predictions of 3.85% and 4.50%.
Goldman Sachs economists have also revised their outlook for Fed rate cuts, now expecting reductions in September, October, and December of 2025, a shift from their original expectation of a single cut near year's end. Despite strong labor market data challenging this view, analysts argue that the data is somewhat distorted by substantial government hiring and a decrease in labor participation rate.
The analysts suggest that a gradual path toward lower short-term rates could reduce fiscal risk premia and enhance economic prospects. They see potential for deeper rate cuts supporting lower yields than previously forecasted.
Meanwhile, the Financial Times reports that long-term bond funds focused on government and corporate debt have seen a significant $11 billion outflow in just three months during Q2 2025, ending a three-year trend of net inflows. The last notable sell-off occurred in Q2 2022.
Robert Tipp, PGIM’s top fixed-income strategist, explains that this shift reflects investor concerns about persistent inflation and the rising government debt load. He describes the environment as volatile, with ongoing inflation above target and heavy government bond issuance driving unease about the long end of the yield curve and broader market stability.