Interest rates have “reset to a ‘higher-for-longer’ regime.”

That’s according to Goldman’s Praveen Korapaty, who lifted the bank’s yield forecasts meaningfully in consideration of the rapidity with which the regime shift unfolded.

“Although we have long anticipated this higher rate regime, we have been surprised by both the pace and the magnitude of the readjustment, and our caution was reflected in our forecasts,” he said. “However, with the regime switch now having occurred, we revise our forecasts in both the US and other fairly correlated G10 economies.”

Goldman now sees US 10-year yields ending 2023 and 2024 at 4.30%. And yes, that’s below current levels. The bank’s old forecasts were 3.9% and 3.75%.

Despite the regime shift, bonds are currently oversold, Korapaty suggested. That accounts for the near-term drop anticipated by Goldman’s new year-end target. “Beyond the near-term view, we expect a bounce to roughly current levels early next year before yields decline across the curve, led by the front-end,” he wrote.

At some point, the economy will slow materially and the curve will bull steepen aggressively, but Goldman expects the 2s10s to remain inverted for the entirety of 2024, “barring a recession.” If that turns out to be correct, it’d be “the longest stretch of inversion without a recession over the past several decades,” Korapaty remarked.

Goldman alluded to selloffs in bunds and gilts, and also to upward pressure on JGB yields, which have a bit more room to rise under the BoJ’s new “flexible” yield-curve control regime. “The initial phase of the repricing appears to have been led by rising growth optimism, whereas the more recent phase appears to be the result of the US exporting the adjustment in its longer maturity rates to a ‘higher for longer’ regime to other countries,” the bank said.

If you’re wondering what history says about bond selloffs like the one we’ve just seen, Goldman looked at seven instances going back two decades during which 10-year US yields rose 100bps within three months.

Across those seven episodes, yields rose an average of 125bps, and subsequently fell by around 40bps in the three months thereafter.

Past performance may not be indicative of future results, as the boilerplate disclaimer goes, but if it’s late September and you have to mark your year-end yield forecasts to market even as you suspect bonds are oversold, you could do worse than a backtest suggesting yields typically retrace around 40bps of rapid 100bps+ cheapening episodes within three months.

This comes as US Treasurys are poised for a third straight annual loss. By now, everyone’s familiar: 10-year US government bonds have never logged three straight years of losses in the history of the republic.

As things stood at the end of this week, Treasurys were staring at a ~4% loss for 2023. That, on the heels of a 17% drop in 2022, the worst single-year loss since George Washington was president.

“A hard landing should make long bonds the most likely ‘biggest trade’ of 2024,” BofA’s Michael Hartnett said this week. “‘Humiliation’ is always the best asset to own.”

Of course, if this truly is a new era and bonds are in the process of a repricing that reflects the entire constellation of relevant concerns, including the notion that other nations might attempt to de-couple from the dollar thereby reducing demand for Treasurys, then backtests and aphorisms may not be much help. Treasury assumes there will always be demand for every bond the US wants to sell, it’s just a matter of price. That’s almost self-evidently true when taken literally, but an assumption under the assumption (if you will) says the price will never be truly onerous.

“As interest rates reset to a ‘higher for longer’ regime, [one] question that often comes up [is] how much further the current selloff can extend,” Goldman’s Korapaty wrote Friday, in the same note cited above. “It is hard to answer [that question] definitively except to say that yields will head higher until some adverse effects or exogenous events intervene,” he went on. “Indeed, if one were to take the supply argument at face value, there should be even more room to go, given that a large portion of the increases in supply still lies ahead of us.”

Read more: What’s Behind The Bond Bear?+