According to Goldman, interest rates will occur in 10 years

Goldman Sachs has released its government bond yield forecast for 2035, and while there are clearly determining factors, it’s a thought experiment that’s still worth considering.

They estimate the US 10-year yield at 4.5% (now 4.2% US10YT=RR>), and take into account two factors that will increase the yield – the impact of AI resulting in real GDP growth of around 2%, and an increase in the US debt to GDP ratio of around 2 percentage points per year in the next two years.

Their forecast 10-year German Bund yield is 2.75% (now 2.57% DE10YT=RR>), a meaningful discount to the US “that reflects much lower nominal growth outcomes in Europe over the long term,” due to demographics and lower inflation potential.

They expect Germany’s fiscal surge to keep Bund yields above 3%, but that policy and yields will normalize over a 10-year horizon.

They estimate the 10-year UK gold yield will be 4.25% (now 4.55% (GB10YT=RR)). The logic is a normalization of inflation rates, large deficits and a rise in policy rates in the UK now, but scar tissue from previous crises may prevent meaningful compression below 4%.

Finally, they forecast the 10-year Japanese government bond yield at 2.0% (now 1.65% (JP10YTN=JBTC)), as inflation returns towards 2% over time. “Once the Japanese economy achieves sustainable inflation, we assume that yields will be able to maintain higher levels.”
Source: Reuters (Alun John)