Goldman Sachs Global Rates Trader: Low Flow Rates — Preference for Carry and Inflation Hedges
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Goldman Sachs notes that energy prices remain a primary variable for global rate markets, although the daily sensitivity of US Treasury yields to rising oil prices has declined since March. The firm sees a lack of sustained catalysts to push yields lower, caught between absent geopolitical relief and growth concerns insufficient to turn the oil shock into a pure growth shock. Given elevated starting yields and reduced oil sensitivity, Goldman Sachs favors carry expressions while retaining long inflation positions to hedge against persistent energy disruptions.
In the US, the Federal Reserve is expected to maintain a wait-and-see stance amid high inflation uncertainty and stable labor markets, keeping rate risks balanced. US banks continue accumulating Treasuries, though demand is steady rather than explosive.
Internationally, rising oil prices complicate carry trades ahead of ECB and BoE meetings, but European sovereign credit and long inflation positions remain preferred. In the UK, tactical bullish views favor the front end over the 10-year segment. In Canada, easing inflation supports a CAD 2s5s steepener. For Japan, curve pressures are migrating from ultra-long segments toward the belly and intermediate maturities. Specific trades include a target of 1.65% on 10-year inflation breakevens and long European HICP forwards to hedge supply chain risks.
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