Hawks Take Flight as Rate Hikes Return

Central banks are expected to continue hiking interest rates as renewed inflation pressure keeps them leaning hawkish. Goldman's global rates team believes that despite resilient growth and heavy investment, the long end of the market will not deliver an easy bond rally. The team argues that forward rates usually peak close to the final hike, making a sustained steepening trade premature.

The Federal Reserve is expected to raise interest rates again in October, with additional tightening favoring a higher, flatter US yield curve. The European Central Bank and Bank of England are also signaling a forceful response to energy pressure, protecting the belly more than the front end. This could reduce private-sector duration supply even as a November hike remains Goldman's base case.

The shift in central bank policy has changed the question facing rates markets. Investors are no longer debating the impact of a single hike but trying to gauge how many hikes can be delivered before tighter policy begins to damage growth.