Goldman Sachs cuts German, UK government bond yield forecasts for end of 2018

LONDON (Reuters) - Goldman Sachs has cut its forecasts for where German and British borrowing costs will end the year as part of its revision of bond yield forecasts across the G10 group of economies in the world.

Goldman now expects German 10-year government bond yields to be at 0.50 percent at the end of 2018, compared to its February forecast of 1 percent.

UK 10-year Gilts will end the year at 1.45 percent, analysts at the bank said in a note, compared to the previous forecast of 2.00 percent.

"We tweak our forecasts to reflect changes to local policy expectations and inflation trajectories," the analysts said.

"(Also) we now expect a smaller amount of term premium repricing in the U.S. and, by extension, smaller spillover effects into other non-U.S. yields," they added, referring to the premium investors demand for holding a bond beyond interest rate and inflation expectations over a period of time.

Goldman Sachs also lowered its forecast on where U.S. 10-year Treasury yields will end the year to 3.10 pct from 3.25 pct previously.

However the bank expects the overall direction of travel is towards higher yields across the G10. The yield on German 10-year bonds are currently at 0.33 percent , UK 10-year Gilts are at 1.26 percent while on 10-year U.S. Treasuries yields are at 2.82 percent.

The one forecast that's been revised upwards by Goldman is that of Japan's. The bank now expects Japanese 10-year yields to rise to 0.12 percent by the end of 2018 compared to 0.10 percent previously.

(Reporting by Abhinav Ramnarayan; editing by Ritvik Carvalho)