Goldman Sachs: Global Rates Trader — Trading Floor
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Goldman Sachs notes that following recent AI-related market turbulence, US trade policy has returned to the spotlight. The rates market's measured response to tariff headlines is justified, as alternative measures should limit the income effect; any further rise in US yields will depend on macroeconomic data. Goldman retains a macro view of robust growth and low inflation, favoring low-volatility sell-offs via a 3m10y payer ladder.
In the US, the Supreme Court's IEEPA ruling has reintroduced uncertainty, though the impact remains contained. The proposed 10% broad replacement tariff implies a slightly larger-than-expected effective rate decline, with an estimated 5bp impact on long-end yields. Front-end inflation compression reflects soft CPI prints and deflationary expectations from AI disruption. In the repo market, SOFR and TGCR rates have reached year-to-date highs, yet systemic liquidity remains stable, with the TGA ranging between $890 billion and $950 billion.
European rate gains appear overextended. Germany's January spending data exceeded expectations at EUR 60 billion versus EUR 55 billion forecast, and the inflation curve carries upside risk. UK gilts have outperformed as term premium relief and softening core inflation support Bank of England easing expectations.
In Canada, trade uncertainty limits rate volatility, and the BoC will likely hold ahead of the July USMCA review. Meanwhile, RBNZ dovishness aligns NZD front-end rates with forecasts, while RBA rate hike expectations leave AUD forwards vulnerable.
Goldman recommends a 3m10y payer ladder (entry: 1.25bp running; target: 11.25bp; stop: -3.75bp).