Bulletin
Investor Alert

Need to Know Archives | Email alerts

Nov. 25, 2019, 1:20 a.m. EST

Why Goldman Sachs sees a ‘baby bear market’ in bonds

Critical information for the U.S. trading day

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    U.S. 10 Year Treasury Note (TMUBMUSD10Y)
  • X
    S&P 500 Index (SPX)

or Cancel Already have a watchlist? Log In

By Steve Goldstein, MarketWatch


Getty Images
Not an outright bear market, but maybe a baby bear market for bonds, at least according to Goldman Sachs.

Betting against bonds has not, to say the least, worked well for the last 40 years or so.

The yield on the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00%  was close to 16% in 1981. This year it’s fallen below 1.5%. Yields move in the opposite direction to prices.

So the new Goldman Sachs call for a “baby bear market” in bonds is a noteworthy call of the day . The argument, laid out in the bank’s 10 market themes for 2020, is that the Federal Reserve is done cutting interest rates after three reductions this year.

The bank does admit that it will take a while for yields to rise. “We think the message from history is that bond yields will start rising when the market prices meaningful odds of rate increases, and that point still seems far off. Fed officials have signaled that they would like to be done with cutting but that the hurdle for hiking again is high. So, although we are cautiously optimistic on the global economy, we forecast only moderately higher 10-year Treasury yields next year, targeting a rebound to 2.25%, mostly skewed toward the second half of 2020,” the company says.

It expects emerging market equities generally, and cyclical stocks in both the U.S. and emerging markets, to rise a bit. “We expect moderately better economic and earnings growth, and therefore decent risky asset returns,” the research note says. “But we also see plenty of risks, and more challenging valuations, so the upside is limited.”

Chart of the day

Tony Dwyer, strategist at Canadian broker Canaccord Genuity, says the stock market’s internals aren’t healthy. The percentage of S&P 500 /zigman2/quotes/210599714/realtime SPX +0.91%  components above their 10-day average is just 50%, and, through Thursday, decliners have outnumbered advancers on the New York Stock Exchange for 8 of the past 11 days. “Many have been so focused on the record highs and strategist targets that they have ignored the overbought condition and internal deterioration,” he said.

Random reads

Researchers have identified the first fossil evidence of polar dinosaurs .

The Republican National Committee spent nearly $100,000 buying copies of Donald Trump Jr.’s new book .

Hazing for students at Cornell University ’s mock trial team consisted of finishing a sheet of pizza, a 30 rack of beer, a fifth of liquor and a “mystery condiment” such as Nutella or frosting. They also were subjected to being “continually interrupted.”

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.

Follow MarketWatch on Twitter , Instagram , Facebook.

/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
1.84
0.00 0.00%
Volume: 0.00
Dec. 6, 2019 4:59p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,145.91
+28.48 +0.91%
Volume: 1.70B
Dec. 6, 2019 5:07p
loading...

Steve Goldstein is MarketWatch markets editor for Europe. Follow him on Twitter: @MKTWgoldstein.

This Story has 0 Comments
Be the first to comment
More News In
Markets

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.