Deflationary forces are still strong says Goldman Sachs. They expect inflation to set new lows in the near term, sending US 10-year treasury yields back down to 3% as a result.
The UK and Australia are likely to benefit from similar government bond rallies.
With the 10-year currently at 3.45%, this implies that a substantial bond rally could be in the cards. Such an event would also likely lead to a strengthening dollar if inflation eases as Goldman expects, and foreign investors bid up US debt.
As a result one imagines such a scenario could be a threat to gold as well.
Bloomberg: “We see risk skewed in the direction of 10-year yields breaking towards their 200-day moving average of 3 per cent, from their current 3.4 per cent level,” Garzarelli and Michael Vaknin wrote in a separate note to clients. “The global bond premium remains elevated, although off the June highs, and there is plenty of excess liquidity in banks balance sheets which needs to be put to work.”
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