Believe it or not, Goldman Sachs is calling a top for U.S. Treasuries in their latest global daily.

The firm believes inflation and interest-rate hike expectations have been overdone for U.S. government bonds. They also appear further emboldened in their call for no major interest rate hike through 2011 after Bernanke's words with Congress.

Get ready for disinflation (falling inflation, down to very low levels):

Goldman Sachs:

Core inflation now beginning its second deceleration phase

Under these circumstances, we continue to expect disinflation in core consumer prices. We have argued for quite some time that core inflation has been sticky up until January because of two temporary inflationary forces —tobacco and car prices. These two factors alone were responsible to nearly a half of year-on-year reading in core inflation. Tobacco prices rose more than 30% last year, as local governments raised taxes in order to make up for their budget shortfalls. While vehicle prices have risen steeply largely because car dealers are now selling their new car inventory at normal prices (as oppose to the ‘liquidation’ prices offered after the collapse of Lehman Brothers).

...

Treasuries are forming a top

At 3.70%, 10-yr Treasuries are at the top-end of the trading range. Our Sudoku model suggests that based on consensus expectations for growth, inflation and policy rates, 10-yr yields should trade at around 3.50%. If we were to plug our below-consensus macro forecasts, Sudoku would put the fair value closer to 3.0%. In our Bond Snapshot, released at the start of the week, we argued that while are currently on the sidelines, we would be inclined to play it from the long side, provided that the outlook for growth fails to improve. Yesterday’s consumer confidence was one important marker in this regard.

(Via Goldman Sachs, Global Markets Daily, Michael Vaknin, 25 Feb 2010)