(Adds UK, Japanese yield forecast changes)
By Jamie McGeever
LONDON, Jan 5 (Reuters) - Goldman Sachs on Thursday raised its forecasts for bond yields around the world in the coming years, predicting that the global fixed income selloff has further to run as inflation and economic growth accelerate.
Goldman now expects the 10-year U.S. Treasury yield to end this year at 3.0 percent, up from its previous call for 2.75 percent, as investors price in further U.S interest rate increases and an expected fiscal boost from the incoming Trump administration.
The U.S. investment bank also said it expects higher British and Japanese yields than previously anticipated, especially UK gilt yields amid the economic and financial uncertainty surrounding Brexit and increased UK bond supply.
"Over the balance of the year, we expect the trend of higher 10-year government bond yields to extend," Goldman's rates strategists wrote in a note to clients on Thursday.
If the U.S. and global economy performs as well as they expect, the yield will rise to around 3.25 percent at the start of 2018 before stabilizing around 3.50-3.75 percent in 2019-20.
The 10-year U.S. yield, considered the global benchmark long-term interest rate, was trading at 2.42 percent on Thursday. According to Goldman's analysts, that's closer to their estimates of 'fair value' than at any time since 2013 but still on the low side.
The yield fell to a multi-decade low of 1.3210 percent in July last year but has been rising since, driven by a global bond market selloff as investors bet that U.S. and global inflation is coming back to life.
The 10-year UK gilt yield is expected to end this year at 1.90 percent, up from Goldman's previous forecast of 1.65 percent and current level of around 1.35 percent. It's expected to hit 3.0 percent by 2020, Goldman reckons.
Japan's 10-year yield is seen rising to 0.20 percent this year and 0.50 percent next year, compared with the previous forecasts of 0.15 percent and 0.30 percent, respectively.
The Bank of Japan currently has a policy of pinning the 10-year yield at around zero in a bid to stimulate growth and inflation.
Goldman kept its German Bund yield forecasts unchanged at 0.80 percent this year, 1.35 percent next year and rising to 2.10 percent by 2020.
Reporting by Jamie McGeever; Editing by Patrick Graham and Raissa Kasolowsky