It’s only early February, and Goldman Sachs Group Inc. has already raised its forecast for short-end Treasury note yields twice this year. The moves underscore how fast investors have been repositioning for Federal Reserve’s rate hikes.

Strategists led by Praveen Korapaty now predict two-year yields at 1.9% for the end of 2022—up from a already raised forecast in January of 1.35%, which is roughly the current rate. While last month they kept their estimate for 10-year rates at 2%, the analysts now see the benchmark yield at 2.25%. The rates on both maturities will climb to 2.45% in 2023, according to them, resulting in a flat curve.

The revised forecasts are “to account for the economic backdrop and the Fed’s hawkish turn,” the Goldman strategists wrote. Most of the bond selloff is likely to come from an increase in real yields, which strip out the effects of inflation. That reflects “the front loading” of rate hikes, and “an expectation that inflation will soften from current elevated levels over time,” they said.

The bond market has had a turbulent start to a year as investors pushed forward their expectations for the Fed to raise rates—predicting more than five increases this year—to combat inflation that’s running at the fastest pace in four decades. Despite an increase of over 40 basis points this year, 10-year yields remain well below the 2.5% Fed’s long-term estimate for its key borrowing rate.

The relatively low long-term yields have spurred some strategists and investors, including Goldman Sachs, to call it a new “conundrum,” reminiscent of the pattern in the 2000s when then Fed Chair Alan Greenspan was tightening policy.

In Wednesday’s note, the strategists kept their view that it takes time for long-term rates to rise. Those yields are low because some investors think that either subdued inflation may soon return or a sharp economic slowdown is on the horizon.

An alternative theory, which Goldman Sachs favors, suggests that the price signal at longer maturities is “distorted” because of a global duration supply-demand imbalance, resulting in a “depressed” risk premium.

“While it is hard to say definitely which of these hypotheses is ‘more correct,’ and the reality is likely to be some combination of both, neither is likely to be resolved in short order,” they wrote.

This article was provided by Bloomberg News.