The US yield curve to steepen in coming months – Goldman Sachs

In its latest report, the US banking giant, Goldman Sachs noted predicting steepening of the US yield curve, in the wake of higher inflation expectations.

Main Points:

US Treasury yields are broadly pricing in stronger GDP growth resulting in a higher and more uncertain path for short real rates set by the Fed.

The market view on the medium-term trajectory of US inflation remains benign.

Markets are pricing it close to remain close to the Fed's 2% target over the medium-term.

Base case in that higher inflation will promote a steepening in the yield curve.

Uncertainties on where real policy rates are heading will persist.

And such uncertainties compounded with inflationary pressures will lead to increase in inflation risk premium.

And that dynamic will result in a steeper yield curve and a more sustained increase in long-dated interest rate volatility.