The bank now sees shorter-dated yields rising at a faster pace than longer-dated ones, causing the yield curve to invert by around 20 basis points. It predicts that 2-year yields – now around 2.24% – will rise to 2.9% at the end of this year and 3.15% at the end of 2023. Its 2022 forecast on 10-year yields was revised to 2.7%, up from 2.25% previously. The 10-year yield was around 2.45% in trading Friday.
The forecast changes follow a steady drumbeat of comments from Fed officials who have said they would be willing to raise rates by a half-percentage point at a time if needed, a type of move the US central bank hasn’t done since 2000. That has pushed up bond yields and left traders across Wall Street bracing for a more aggressive path from the Fed.
An inverted yield curve is normally seen as a warning signal of a recession. But Goldman Sachs said that while the risk of an economic slowdown has increased, a modestly inverted curve is a less definitive predictor of a recession.
