Goldman Sachs Group Inc (NYSE:GS) Expects 10-Year Treasury Bond Yields To Reach 4% By 2016

Goldman Sachs Group Inc. (NYSE:GS) said it raised its outlook for the 10-year Treasury note Sunday, projecting a long-term upward trend.

The company now expects that yields for the benchmark note will hit 4.0 percent by 2016 and that by the end of 2013 it will reach a range of 2.75 percent to 3 percent, according to a statement released by the global investment banking giant.

Yields moved above 2.7 percent on Friday, their biggest one-day rise since 2010, following better-than-expected jobs data for June and expectations that the positive data will prompt the Federal Reserve to begin scaling back bond purchases.

Goldman's head of market research for Europe, Francesco Garzarelli, said he based his outlook on an improving U.S. economy, anticipation that the Fed will wind down its bond purchasing program, and fewer systemic risks in the euro zone.

"Factors driving yields higher include the improving outlook for growth in the U.S. (and partly also in Europe), a decline in systemic risks stemming from the euro area, and the reduction in the pace of Fed purchases," Garzarelli said in a research note.

Goldman expects the difference between Treasurys and other government-bond markets to grow, evidenced by the fact that the group did not raise its forecasts for European and Japanese government bonds. Wide yield spreads between U.S. and German bonds can be a sign of diverging growth projections.