Goldman Sachs flags long-end Treasury rates as the biggest near-term threat to markets

Goldman Sachs has pinpointed a single variable as the most important short-term risk across markets: long-end interest rates. Not the Fed funds rate, not credit spreads, not earnings revisions. The far end of the yield curve, particularly 30-year Treasury bonds, is where the bank sees the most potential for disruption in the months ahead. Why the long end matters more than the short end right now Short-term rates are relatively well-anchored by Fed guidance and market pricing of future policy moves. The 30-year bond, by contrast, is exposed to forces that no central bank can easily control. Three of those forces are converging right now. First, persistent inflation expectations that refuse to fully normalize. Second, a surge in Treasury supply as the US government finances widening deficits. Third, growing anxiety about long-term fiscal sustainability. The three cross-currents Goldman is watching The first cross-current is the inflation picture. The stickiness of services inflation and wage growth continues to pressure the long end. That term premium, the extra yield investors require for holding longer-dated bonds, has been quietly expanding. The second cross-current involves Trea...