Global Rates Trader

21 May 2021 | 3:10PM EDT
Global Rates Trader
A taper trade preview
Yield response to FOMC minutes offers glimpse into potential reaction to taper talk. Praveen Korapaty
+1(212)357-0413 |
Range bound UST spread outlook favors relative rather than outright spread praveen.korapaty@gs.com
Goldman Sachs & Co. LLC
expressions. TIPS supply tailwind has been modest support to breakevens, should
George Cole
remain modest positive. Fed decision on standing repo facility not imminent, with +44(20)7552-1214 |
george.cole@gs.com
questions still unanswered. Banks increasingly inclined to limit balance sheet size Goldman Sachs International
amid reserve growth. Direction of travel for European spreads likely wider despite William Marshall
+1(646)446-1751 |
For the exclusive use of ALEJANDRO.TORRES.CANO@BBVA.COM
this week’s price action. OAT underperformance too early to reflect election risk, but william.c.marshall@gs.com
risks skewed to the upside while EU bonds likely effective hedge ahead of 2022 Avisha Thakkar
+1(212)902-9964 |
French election. UK traded inflation to trend down despite RPI surprise, sticky avisha.thakkar@gs.com
CPI-RPI wedge argues for shorts in the forward space; go short 2y3y UK real yields.
Dovish RBNZ tone could translate to some moderation of hike pricing. Simon Freycenet
+44(20)7774-5017 |
simon.freycenet@gs.com
Goldman Sachs International
United States/North America

n Minutes offer glimpse into potential market reaction to taper talk. US yields
rose following the release of the April FOMC minutes, which referenced a
number of participants suggesting that discussion of a plan to adjust the pace of
asset purchases at “upcoming meetings” may be appropriate if rapid progress
toward the Committee’s goals continued. Our economists note that the
disappointing April employment report likely postpones the start of such
6c263eaea20c48939b3438992d02e983
discussions. Nevertheless, the reaction offers some clues to how rates markets
may view the taper discussion. 10y real yields rose by about 4bp following the
minutes, with a commensurate drop in 10y breakevens. This ties in with our view
that breakevens are more “fully priced” to our economic outlook than real yields
are, and hints of removal of accommodation could shift relative pricing between
the two components. That said, we acknowledged the possibility that markets
would require more inflation risk premium in a period of elevated inflation prints,
and had tightened the stops on our forward breakeven longs (which have since
been triggered). In terms of the real yield component, we noted recently that
intermediate (and longer) horizon real yield forwards have room to reprice higher,
as markets do not yet appear to be requiring an appropriate real risk premium.
The absence of imminent catalysts, however, means that a nominal rates short
remains our preferred macro exposure for now. Another interesting element of
market moves following the minutes was that 5y real yields rose more than 10y
real yields, suggesting that the more significant pricing impact may be to liftoff
Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html.
Goldman Sachs Global Rates Trader
and policy path pricing, and less at longer maturity term premia.
n Near term swap spread outlook still about belly relative value. While 2y UST-OIS
spreads remain firmly anchored just below zero, May has brought incremental
tightening pressure to spreads further out the curve, worth about 1.5bp to 5s and
10s and a somewhat more notable 5.5bp at the 30y point. Some of the shifts further
out the curve reflect a combination of weakness around the 30y refunding coupled
with a shift in of Fed purchases towards the belly of the curve (largely at the
expense of the 20y sector, though 30s weakened in sympathy). From a broader
perspective, our outlook for the various drivers of swap spreads in our spread
framework suggests relatively range-bound spreads across the curve through the
remainder of the year. Long end spreads appear better priced for the supply outlook,
though we could see some further pressure near term, whereas the reverse is true
at the front end—2s and 5s have some support from the front end collateral
squeeze, but this should reverse following debt limit resolution, which could result in
some tightening pressure here at that point. One potential consideration that could
affect spreads across the curve is if the Fed adjusts IOER without also moving the
RRP rate, it would likely result in cheaper financing costs versus OIS; while that
typically translates to wider spreads, given the IOER tweak would be small, we
expect the net impact on spreads to be modest. For now, our preferred spread
expression remains one of relative performance—we like belly spread longs (7y
spreads) versus shorts in 2s and 20s given carry considerations and shifts in Fed
purchase allocations.
n The TIPS supply tailwind. Despite the weak reception at this week’s 10y TIPS
auction, the broader TIPS supply backdrop has been a supportive one for the
product. Treasury refrained from upsizing TIPS auctions last year even as it massively
raised nominal coupon auction sizes, and has been only gradually adding to issuance
this year. The net result has been a steady decline in the TIPS share of Treasuries
outstanding. Excluding what the Fed owns, TIPS now account for just about 10% of
6c263eaea20c48939b3438992d02e983
Treasury coupons outstanding, down from about 11.5% a year ago. Under our
issuance and taper projections, that is likely to decline another percent over the next
year. Our empirical estimate suggests that the supply shift has been worth
approximately 10bp of upside to breakevens across the curve, and the tightening of
the inflation basis (breakevens outperforming inflation swaps) similarly suggests the
supply picture has been a support (Exhibit 1). As we noted after the May refunding
decision, it seems that there is support for incrementally larger increases to TIPS
auctions, but still within the context of fairly gradual adjustments, suggesting to us
that while the supply tailwind may be more modest from here, the backdrop is likely
to remain a relative positive for cash inflation.
21 May 2021 2
Exhibit 1: Alongside the decline in TIPS as a share of UST coupons Exhibit 2: Reducing wholesale funding, caps on deposits and
outstanding, cash breakevens have richened relative to inflation lowered rates, and decreased advances from FHLBs were the
swaps preferred options for curtailing balance sheet growth, as indicated
10y inflation basis (matched maturity inflation swap less 10y breakeven) in the latest Senior Financial Officers Survey
vs TIPS share of coupons Share of banks in SFO survey that indicated intent in curtailing balance
sheet growth, by activity
bp 10y Inflation Basis (Inflation swap less Breakeven) % % of respondents Domestic and Foreign Banks % of respondents
40 12.0
TIPS as % of Coupons outstanding (ex-Fed, rhs) 80 80
70 70
35
11.5 60 60
30 50 50
40 40
11.0
25 30 30
20 20
20 10.5 10 10
0 0
15
Decrease advances
rates, operational
operational deposits
liabilities to mature
rates, nonoperational
nonoperational deposit
nonoperational deposits
wholesale funding
Allow outstanding
Reduce deposit
10.0
Reduce deposit
Impose caps on
Impose fees,
from FHLBs
Impose fees,
10
inflows
9.5
5
0 9.0
Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21
Source: Goldman Sachs Global Investment Research Source: Federal Reserve Board, Goldman Sachs Global Investment Research
n Broad support at Fed for standing repo facilities. The April FOMC meeting
minutes contained an extended discussion on the pros and cons of establishing a
(domestic) standing repo facility, and making permanent the Foreign and
International Monetary Authority (FIMA) facility. On the former, the Fed staff noted
that such a facility could help forestall “funding strains that could spill over into other
overnight markets and limit dealers’ intermediation activity in financial markets,” but
that it could also “be seen as a form of liquidity support for nonbank financial
institutions” that could incentivize them to take on more liquidity risk against eligible
securities than would otherwise be the case. While there appeared to be broad
support among FOMC members for such a facility, with a “substantial majority”
seeing the benefits as outweighing the costs, the Fed appears no closer to
determining key design elements of such a facility (ranging from pricing,
6c263eaea20c48939b3438992d02e983
counterparties, and accepted collateral). We had discussed many of these
considerations, and their implications for markets in a previous report, and
concluded that a standing fixed rate facility with not too broad access, and a rate set
above the top of the Fed’s target range, perhaps by about 25bp or more would be a
good design compromise. While such a facility would likely on the margin dampen
repo volatility, it would primarily work to enhance control of the fed funds rate,
something several participants noted they would like to see the facility’s design
targeted towards. Given some of these outstanding questions, and the absence of
liquidity concerns (in fact, the current issue is excess liquidity pressuring front end
rates lower), we do not see any decision on this front as imminent. Our best guess
is the Fed will first make the FIMA (repo) facility permanent; it has fewer design
variables that need to be solved for, and there is a temporary version already up and
running that is currently set to expire September this year—that may be a
reasonable time to make such a change.
n SFO offers insights into bank reserve management. The roughly $700bn in
reserve growth so far this year on top of the ~$1.5tn increase last year is something
we have long flagged should increasingly put pressure on bank balance sheets. The
21 May 2021 3
March Senior Financial Officer Survey offered some notable insights into how banks
are managing their balance sheets as reserves swell. Consistent with the prior
survey, a large contingent of banks indicated less willingness to grow their balance
sheets. About a third of respondents noted their banks already are taking action to
limit the size of their balance sheets and intended to continue such actions, and
another third noted they would either preserve or shrink their size if they faced
further pressures. The subset of banks that intended to reduce the size of their
balance sheets were also queried on their preferred means of reducing liability
growth. As shown in Exhibit 2, most respondents clearly preferred some mix of
allowing outstanding wholesale funding liabilities to mature without replacement,
reducing deposit rates on non-operational deposits, or simply imposing client caps.
A significant contingent of domestic banks that are FHLB members also noted
willingness to decrease FHLB advances as a way to mitigate balance sheet growth.
European Rates
n Sovereign spreads now close to macro fair value. Sovereign spreads ended the
week tighter, reversing a gradual trend-widening since April. We’ve argued that this
repricing higher and the associated steepening of credit curves make sense, with
the impulse of ECB balance sheet support unlikely to be dovish from here and the
tight starting point for spreads. The widening in recent months leaves spreads
closer, but still slightly tight, to our EMU spread valuation framework, except in
France which now trades slightly wide to our model estimates (Exhibit 3). This
suggests a more neutral valuation signal overall, and with a tactical pause in the
broader sell-off, possibly a bullish one for France. But as we argue below, the
prospect of additional election risk premium through 2H 2021 leads us to
recommend underweight France vs Spain on a six-month view, despite the (modest)
valuation gap. The recent sell-off in core yields and net widening in spreads makes
risk-reward for the June meeting a little more balanced, but room for spread
6c263eaea20c48939b3438992d02e983
compression remains limited amid a continued drift higher in core yields on an
improving European macro outlook and the likely modest reduction of the PEPP
purchase pace in June. We therefore still like being short 30y bunds, but tighten our
stop to 37bp to reflect the shifting risk-reward.
21 May 2021 4
Exhibit 3: Sovereign spreads have converged to our macro-fitted Exhibit 4: EU bonds have proven resilient to country-specific risk in
fair values in recent months 2017
st. dev. st. dev. 1.50 % % 1.50

OAT-Bund 10y Bonos-bund 10y BTP-Bund 10y
3 3
OAT underperforms
Wide vs model 1.25 1.25
2 2
1.00 1.00
Pull to valuation
1 1
0.75 0.75
0 0
0.50 0.50
-1 -1 OAT 25/04/2029
0.25 0.25
Tight vs model EU 04/10/2029
-2 -2
0.00 0.00
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21
Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17
Source: Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
n OATs have underperformed, but election risk will only build. With a little less
than one year remaining before the first round vote, French election risks are already
in focus. Recent underperformance of OATs would reflect a very early pricing of
election risk relative to 2017, and given the common correlation with broader
sovereign spread markets (including other semi-core markets) we think election risk
is only a modest factor so far. We see risks of further widening in OAT-bund spreads
in late 2021/early 2022, with up to a 35bp parallel rise in the OAT-bund credit curve.
Given the increased carry costs at the 2y point following the recent repricing in the
front-end, we think the best volatility-adjusted shorts are in the belly of the
OAT-bund curve (around the 5y point). We have also previously highlighted the
resilience of EU bonds during periods of country-specific risk (Exhibit 4), something
we expect to persist given ongoing deepening of the EU bond market. Given
roughly similar yield levels, short OAT vs EU bonds is also likely to be an efficient
election hedge.
6c263eaea20c48939b3438992d02e983
n Upside RPI surprise temporary, short 2y3y real yields: While UK CPI matched
consensus at 1.5% y/y, the RPI-CPI wedge widened unexpectedly with RPI printing
50bp above expectations at 2.9% y/y. This widening in part reflects methodological
treatment of house prices, which may prove sticky throughout 2021. As a result, we
think shorting forward RPI inflation is a better expression of our view of subdued
inflationary pressures in coming years. We recommend shifting our short 5y UK real
yields recommendation to short 2y3y real yields (open -3.05%, target -2.50%, stop
-3.30%). We think the expression offers attractive risk/reward given the current
combination of: 1) elevated inflation, 2) early BoE liftoff (with 17bp priced by
end-2022) and 3) a flat forward curve with only 20bp priced each year end-2022 to
end 2025. This mix of pricing is hard to square—we think that lift-off is likely priced
too early, but relative to the current 2y pricing of OIS and inflation, 2y3y OIS rates
should be higher.
Other G10 Markets

n RBNZ meets under better backdrop. RBNZ officials will head into next week’s
monetary policy meeting under a backdrop of better-than-expected recent economic
21 May 2021 5
performance and an improved near-term fiscal position. The bank’s updated path for
the unemployment rate is likely to be in focus. Our economists expect forecasts will
be revised lower, but still show a near-term “bump” in the path. If realized, we see
the bank as likely to retain a dovish tone and maintain current guidance, though we
acknowledge risks that an updated path showing sustained declines in the
unemployment rate could see the RBNZ simultaneously pull forward its OCR track,
thereby delivering a hawkish signal to the market. At present, markets are fully
discounting a hike by September 2022, with an additional 3 hikes priced through
end-2023, significantly ahead of our economists’ own projection for liftoff in 1Q24.
While it’s possible markets press this further if the bank surprises on the hawkish
side next week, we see risks skewed towards markets fading the extent of
normalization priced by then.
6c263eaea20c48939b3438992d02e983
21 May 2021 6
Latest Thematic Research:

May refunding takeaways - 5 May 2021
An earlier reduction in Treasury supply - 27 Apr 2021
European front-end inflation now fair, upside risk to real yields - 16 Apr 2021
How big is the market-policy rate forecasts gap? - 8 Apr 2021
The impact of retained holdings on German issuance - 1 Apr 2021
Latest Global Markets Dailies:

The Case for Higher Intermediate US Real Yields - 20 May 2021
French Presidential Elections - 2017 All Over Again? - 19 May 2021
US Yields Beyond the Q2 Growth Peak - 12 May 2021

High forecast uncertainty, low yield sensitivity - 6 May 2021
Valuing EUR Sovereign Credit Curves - 28 April
The authors would like to thank Stuart Jenkins and Naman Jain for their contributions to
this report
6c263eaea20c48939b3438992d02e983
21 May 2021 7
Summary of Views
Core Views Recommendation Entry Date
Reflatonary themes have further room to run, but will require an accumulation of positive data surprises
coupled with support from strong data outside the US to push belly/longer maturity yields higher. If the
Long 1y5y5y USD midcurve payers 5-Mar-21
recovery proves more spread out than expected following recent data disappointments, yield move will
likely be less front-loaded.
With inflation breakevens close to our targets, we see the move higher in yields from here will be real yield
-- --
driven as belly real rates forwards move towards levels more consistent with neutral rate assumptions.
Markets are priced for somewhat earlier normalization than our economists and consensus expects,
Duration
reflecting a more optimistic view on inflation. For front-end hike pricing to compress, markets will have to -- --
get more pessimistic on inflation path.
With vaccination rollout gaining speed, downside risks to Euro area outlook should recede. Ultimately a
gradual upgrade of the ECB's economic outlook and implicit tolerance for higher yields, coupled with Short 30y bunds 16-Apr-21
upside risks to net supply should support a short bias in EUR duration.
The extent of the real yield repricing in CHF rates leaves a high bar for further repricing, which we expect
Pay 10y EONIA vs 10y CHF OIS 18-Dec-20
is reliant on more global factors. We expect some stabilization and eventual reversal of CHF rates vs EUR.
Recent inflation surprises has seen longer term real yields start to move higher again, pushing the curve
back towards recent local highs in the US. While there is room that the steepening can run further, -- --
risk/reward is less compelling to bearish steepening exposure from here.
Global yield spillovers and portfolio rebalancing flows out of JGBs and into more attractive foreign bonds
can pressure longer-maturity JGB yields higher, curves steeper. Recent widening in tolerance band for Pay 20y JPY 5-Mar-21
JGB yields should allow for more sensitivity to global developments.
Curve Current market pricing for a more hawkish BoC vis-à-vis the Fed is reasonable, although to the extent we
are correct in our view that the realization of current Fed pricing would require a “best case” outcome on
the economy, current CAD hike pricing will likely prove similarly stretched.
With RBA likely to keep the yield curve target point fixed in April 2024, belly and longer maturity yields
should be able to reprice further on the back of accelerating growth globally. Sequencing constraints, the
2y1y/5y5y AUD swap curve steepeners 30-Apr-21
degree of slack, and sluggish inflation pressures, all suggest there is too much risk premium in the front
end, making carry trades look attractive.
Despite risk of further fiscal support, we maintain a fairly stable outlook for duration supply. While rising
free float is consistent with downward pressure on longer term spreads, rebalancing flows have been a
source of recent strength. Looking ahead, pension/LDI demand should provide some support against -- --
supply-driven pressure, but increased reliance on levered buyers of USTs is consistent with some long-
end spread tightening.
Large auction sizes at the 7y and 20y points suggest scope for eventually larger reductions when Treasury
Spreads starts to trim auctions, likely early next year. In the interim, however, Fed purchase reallocation should be
Long belly of 2s7s20s spread fly 14-May-20
to the benefit of the belly of the curve and at the expense of 20s, as creation of new buckets pulls buying
that was happening at the 20y point into the 7-10y part of the curve.
Upcoming growth acceleration will likely keep front-end EMU spreads tight, while a gradual withdrawal in
ECB pandemic policy support and the risk of additional issuance surprises in France and Spain should
-- --
support spread widening at the 10-year point, we favour 2s10s spread curve steepening for Italy and
Spain, and a shortening in duration of spread exposure.
We think implied vol in the belly and long-end of the curve should remain well supported into the recovery,
with yields in those parts of the curve now at levels where ELB constraints are considerably weaker and
-- --
high degree of macro volatility likely consistent with elevated uncertainty around underlying trend. Further
6c263eaea20c48939b3438992d02e983
Vol leg higher possible should concern about overheating risk increase.
Lack of call eligible Formosa debt in 2021 suggest downward pressure on vega curves last year should
unwind, allowing for some normalization in longer-dated long-end vol. Combined with broader macro Long 10y30y USD Payers 9-Apr-21
backdrop supportive of higher volatility, favor long dated long-end vol.
Combination of bill paydowns and higher reserves should has pressured overnight and short term US
Money rates towards zero, though Treasury's comfort with higher cash balance reduces some of the pressure on
-- --
Market bill supply. The RRP facility is likely to see continued elevated usage, eventually transforming some of the
excess liquidity to non-reserve liabilities and helping to keep rates floored around zero.
10y breakevens have rallied towards our year-end target levels, driven predominanlty by strength in the
front-end of the inflation curve. Although risk/reward to inflation longs is less attractive, near-term price -- --
data strength may bring additional upside for existing longs
Ongoing cyclical recovery should take belly yields higher, while UK RPI curve likely underpricing extent of
Short 2y3y GBP real yields 21-May-21
Inflation remaining slack and should start to normalize beyond covid-driven reacceleration in activity.
Year-to-date strength in EUR traded inflation has been risk-premia led, reflecting a reduction in downside
skew in inflation risks. With pricing of front-end inflation now aligned with our economists' forecasts, the
-- --
hurdle to upside from here is high, suggesting increasingly asymmetric risks to EUR real yields in the
context of our view for a nominal selloff.
Source: Goldman Sachs Global Investment Research
21 May 2021 8
Forecasts
G10 Yield Forecasts
G10 10-Year Yield Forecasts
USD DEM GBP JPY CAD CHF SEK NOK AUD NZD
spot 1.63 -0.11 0.84 0.09 1.55 -0.12 0.47 1.56 1.77 1.87
2Q21 1.80 -0.15 1.05 0.25 1.70 -0.15 0.60 1.70 2.05 2.20
3Q21 1.90 0.00 1.10 0.30 1.80 -0.10 0.65 1.80 2.10 2.25
4Q21 1.90 0.00 1.10 0.30 1.80 -0.10 0.70 1.85 2.10 2.25
1Q22 1.95 0.00 1.15 0.30 1.85 -0.10 0.75 1.85 2.15 2.30
2Q22 2.00 0.00 1.15 0.30 1.95 -0.10 0.80 1.85 2.20 2.35
3Q22 2.05 0.05 1.20 0.30 2.00 0.00 0.85 1.90 2.25 2.40
4Q22 2.10 0.05 1.25 0.30 2.00 0.00 0.90 1.90 2.30 2.45
1Q23 2.15 0.10 1.30 0.35 2.05 0.00 0.95 1.95 2.35 2.50
2Q23 2.20 0.15 1.35 0.35 2.05 0.00 1.00 1.95 2.40 2.55
3Q23 2.25 0.20 1.40 0.35 2.10 0.05 1.00 2.00 2.45 2.60
4Q23 2.30 0.25 1.40 0.35 2.10 0.10 1.05 2.00 2.50 2.65
1Q24 2.35 0.30 1.45 0.40 2.15 0.10 1.05 2.00 2.55 2.70
2Q24 2.35 0.35 1.45 0.40 2.15 0.15 1.10 2.05 2.55 2.70
3Q24 2.40 0.40 1.50 0.40 2.20 0.20 1.10 2.05 2.60 2.75
4Q24 2.40 0.45 1.50 0.40 2.20 0.20 1.15 2.10 2.60 2.75
Deviation from Forwards

USD DEM GBP JPY CAD CHF SEK NOK AUD NZD
2Q21 0.14 -0.07 0.15 0.15 0.11 -0.01 0.14 0.14 0.29 0.29
3Q21 0.15 0.04 0.10 0.18 0.13 -0.03 0.14 0.21 0.32 0.26
4Q21 0.08 0.00 0.05 0.16 0.07 -0.06 0.15 0.21 0.24 0.18
1Q22 0.05 -0.03 0.05 0.14 0.06 -0.10 0.16 0.17 0.21 0.14
G4 Curve Forecasts
% %
USD DEM
2.8 0.8
Current
2.4 YE 2021 0.6
YE 2021, Forwards
2.0 0.4
0.2
1.6
0.0
6c263eaea20c48939b3438992d02e983
1.2
-0.2 Current
0.8
-0.4 YE 2021
0.4 -0.6 YE 2021, Forwards
0.0 -0.8
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Tenors Tenors
% %
GBP JPY
1.8 1.0
Current Current
1.6 YE 2021 YE 2021
YE 2021, Forwards 0.8 YE 2021, Forwards
1.4
1.2 0.6
1.0
0.4
0.8
0.6 0.2
0.4
0.0
0.2
0.0 -0.2
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Tenors Tenors
21 May 2021 9
Central Bank Dashboard

Market pricing on timing of liftoff vs. GS forecasts Market pricing of timing of liftoff vs. hikes priced over subsequent
year
Current 3m ago
60 80
CHF EUR
Hikes priced over 1y after liftoff (bp)

CAD
50 GBP
SEK
60
Months to first hike, GS
USD
40 AUD AUD
NZD
USD NOK NZD
30 40
GBP SEK
CAD
20 CHF
20 EUR
10 NOK
0 0
0 10 20 30 40 50 60 0 10 20 30 40 50 60
Months to first hike, market Months to first hike, market
Source: Goldman Sachs Group Inc., Goldman Sachs Global Investment Research
Cumulative amount of hikes/cuts priced from today Central bank sovereign QE expectations
bp Today vs. 3m Ago bp

250 USD EUR GBP JPY 250
USD EUR GBP JPY

200 200
bp USD
250
150 Current 3m ago
150
100 200 100

CHF
50 50
150
0 0
100
-50 -50
0 12 24 36 48 60 72 84 96
50 Months from today
6c263eaea20c48939b3438992d02e983
Central bank assets as a share of GDP Central bank ownership of sovereign bonds, current vs. 1y ago
Percent of GDP Percent of GDP % %

140 140 60 1y ago Latest estimate 60
Fed ECB BOE BoJ
120 120
50 50
100 100
40 40
80 80
30 30
60 60
20 20
40 40
20 20 10 10
0 0 0 0
2000 2005 2010 2015 2020 USD DEM FRA ITA ESP GBP JPY CAD AUD NZD SEK
Source: Haver Analytics, Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
21 May 2021 10
Positioning and Flows Monitor

Option-Implied Position Indicator
Ratio Ratio Ratio Ratio

6 US Option-implied Position Indicator 6 10 German Option-implied Position Indicator 10
4 Sell threshold 4 5 Sell threshold 5
2 2
0 0
0 0
-5 -5
-2 -2
-10 -10
-4 -4
Buy threshold -15 -15
-6 -6 Buy threshold
-8 -8 -20 -20
-10 -10 -25 -25

2015 2016 2017 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021

Residual of 10y UST yield changes on filtered AM position vs 6m CFTC Commitment of Traders and Traders in Financial Futures
ahead change in 10y UST yield Duration-weighted net position by investor type
Gray lines denote +/- 0.25 standard deviations
Duration-Weighted Positioning, by Contract
z-score 6m Residual on AM & O Filtered Position bp
3.0
6m ahead Change in 10y yield (RHS, inverted)
-150 $mm/bp ED TU FV TY TN US WN
Spec Current 6.7 -7.0 -10.3 8.5 16.8 -21.6 -75.9
2.0
-100
Spec 1w Chg -3.4 2.9 -5.8 1.4 0.1 4.7 10.9
1.0
-50 LF Current 14.4 -25.8 -17.8 46.6 31.5 -38.6 -89.2
0.0
0
LF 1w chg -6.0 -1.9 -4.0 4.9 0.4 3.7 13.2
-1.0
AM + Other Current -28.1 24.3 28.1 -23.3 -26.6 66.3 127.4
50
-2.0 AM + Other 1w Chg 0.1 1.1 5.1 -10.1 0.4 0.1 -14.5
-3.0 100 Dealer Current 20.0 -0.1 -5.1 -1.7 15.3 -15.1 -24.8
Dealer 1w Chg 2.8 0.5 -1.1 6.8 0.1 -1.2 4.8

-4.0 150
2015 2016 2017 2018 2019 2020 2021
Note: 6m residual changes on yield in filtered position (z-score) and 6m ahead change in 10s Source: CFTC, Goldman Sachs Global Investment Research
6c263eaea20c48939b3438992d02e983
Source: CFTC, Goldman Sachs Global Investment Research
Net positions in Eurodollars Net positions in UST futures
% of OI Eurodollar Positions % of OI %of OI Treasury Positions % of OI

8 8 40 40
6 Spec ED LF ED AM + Other ED 6 Spec UST LF UST AM + Other UST

30 30
4 4
20 20
2 2
10 10
0 0
0 0
-2 -2
-4 -4 -10 -10
-6 -6 -20 -20
-8 -8 -30 -30
-10 -10
May-16 May-17 May-18 May-19 May-20 -40 -40
May-16 May-17 May-18 May-19 May-20
Note: Duration-weighted net position (long - short) as a % of duration-weighted gross exposure Note: Duration-weighted net position (long - short) as a % of duration-weighted gross exposure
(long + short + spreading) (long + short + spreading)
Source: CFTC, Goldman Sachs Global Investment Research Source: CFTC, Goldman Sachs Global Investment Research
21 May 2021 11
Primary dealer transactions US Commercial Banks’ Holdings of Treasury and Agency Securities
Net dealer position in US Treasuries Total domestic and foreign holdings, all commercial banks
$bn. mm/bp $bn. $bn.

350 200 Treasury and Agency Debentures
Total notional Duration weighted (RHS) 1,340 1,340
300 175
1,260 1,260
150 1,180 1,180

250
125 1,100 1,100
200
100 1,020 1,020
150
75 940 940
100
50 860 860
50 25 780 780
0 0 700 700
May-16 May-17 May-18 May-19 May-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21
Source: Federal Reserve Bank of New York, Goldman Sachs Global Investment Research Source: Federal Reserve Board
NY Fed Custody Holdings US TIC Treasury Flows

Marketable US Treasuries 12m change in valuation-adjusted holdings of USTs, by holder of debt
$bn. $bn. $bn. $bn.

3,150 FRBNY Custody Holdings of USTs 3,150 60 60
20 20
3,100 3,100
-20 -20
3,050 3,050
-60 -60
3,000 3,000
-100 -100
2,950 2,950 -140 -140
-180 -180
2,900 2,900 Africa Lat-Am Japan Rest of Europe
Middle East China Rest of WorldEuro Area
May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21
Source: Federal Reserve Bank of New York Source: US Treasury, Goldman Sachs Global Investment Research
6c263eaea20c48939b3438992d02e983
Net monthly purchases of short and long term US Treasuries by Flow of Funds average annual net purchases of US Treasuries, by
Japanese investors sector
¥tn. ¥tn. $bn $bn

Japan BoP: Net Investment in Treasuries
6 6 2019 2020 2021, Forecast
1500 1500
$2553bn
4 4 1250 1250
1000 1000
2 2
750 750
0 0
500 500
-2 -2 250 250
0 0
-4 -4
-250 -250
Fed Foreign House Pensions Asset MMMFs Foreign Banks Brokers/ Other
-6 -6 Official holds Managers Private Dealers Sectors
Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 Mar-21
Source: Bank of Japan, Haver Analytics Source: Federal Reserve Board, Goldman Sachs Global Investment Research
21 May 2021 12
Carry/Rolldown Monitor
Outright Carry
Bar chart shows top two carry points by currency, with solid reflecting carry to a long position and striped carry to a short position. Scatter illustrates
top 25 carry/vol points by currency, with top point by currency noted
bp Solid represents carry to being long bp USD: 1y1y EUR: 3m1y GBP: 1y1y JPY: 3m1y
20 Striped represents carry to being short 20 8 CAD: 1y2y AUD: 3m4y NZD: 3m1y
18 18 6 Long
16 16
4
14 14
Outright Carry (3m)

2
12 12
10 10 0
8 8 -2
6 6 -4
4 4
-6
2 2 Short
-8
0 0
4y1y 4y2y 7y1y 7y2y 1y1y 2y1y 7y7y 10y5y 3y1y 2y2y 5y2y 5y1y 3m1y 5y2y -10
USD EUR GBP JPY CAD AUD NZD 0 5 10 15 20 25 30 35 40
Delivered Vol (3m)
Curve Carry
Bar chart shows top two carry curves by currency, with solid reflecting carry to a steepening position and striped carry to a flattening position.
Scatter illustrates top 5 carry/vol curves by currency, with top curve by currency noted
bp bp USD: 1s2s EUR: 15s20s GBP: 1s2s JPY: 1s2s
16 Solid represents carry to steepener 16
Striped represents carry to flattener 8 CAD: 15s20s AUD: 15s30s NZD: 20s30s
14 14 Steepeners
12 12 4
Outright Carry (3m)
10 10
0
8 8
6 6
-4
4 4
2 2 -8
Flatteners
0 0
1s7s 1s5s 1s10s 1s7s 1s4s 1s2s 3s15s 4s30s 1s7s 1s10s 1s7s 1s15s -12
2s15s 5s30s 0 2 4 6 8 10 12
USD EUR GBP JPY CAD AUD NZD Delivered Vol (3m)
6c263eaea20c48939b3438992d02e983
Fly Carry
Bar chart shows top two carry flies by currency, with solid reflecting carry to a belly-richening fly and striped carry to a belly-cheapening fly. Scatter
illustrates top 5 carry/vol flies by currency, with top fly by currency noted
bp Solid represents carry to belly richening fly bp USD: 3s7s30s EUR: 7s10s20s GBP: 1s2s3s JPY: 5s15s30s
16 Striped represents carry to belly cheapening fly 16 CAD: 2s3s4s AUD: 4s7s20s NZD: 1s5s30s
12
14 14
Belly Richening
12 12 9
Outright Carry (3m)
10 10
6
8 8
6 6
3
4 4
2 2 0
0 0 Belly Cheapening
1s7s30s 1s10s30s 1s4s30s 3s15s30s 2s4s30s 1s7s30s 1s7s30s -3
1s5s30s 1s10s20s 1s2s30s 2s15s30s 2s5s30s 1s10s30s 1s15s30s
0 3 6 9 12 15
USD EUR GBP JPY CAD AUD NZD Delivered Vol (3m)
21 May 2021 13
Treasury Supply Monitor

Gross auction size estimates by FY end, with GS projections
Monthly Auction Amounts at End of Calendar Year ($ billions)

SOFR
2y FRNs 2y 3y 5y 7y 10y 20y 30y 5y TIPS 10y TIPS 30y TIPS
FRNs
CY19 20 / 18 (r) 40 38 41 32 27 / 24 (r) -- 19 / 16 (r) 17 / 15 (r) 14 / 12 (r) 8 / 7 (r)
CY20 26 / 24 (r) 58 56 59 59 41 / 38 (r) 27 / 24 (r) 27 / 24 (r) 17 / 15 (r) 14 / 12 (r) 8 / 7 (r)
CY21, GS 28 / 26 (r) 60 58 61 62 41 / 38 (r) 27 / 24 (r) 27 / 24 (r) 20 / 18 (r) 16 / 14 (r) 9 / 8 (r)
CY22, GS 26 / 24 (r) 24 / 22 (r) 54 52 55 50 36 / 39 (r) 20 / 23 (r) 22 / 25 (r) 21 / 19 (r) 17 / 15 (r) 9 / 8 (r)
CY23, GS 26 / 24 (r) 24 / 22 (r) 54 52 55 50 39 / 36 (r) 23 / 20 (r) 25 / 22 (r) 21 / 19 (r) 17 / 15 (r) 9 / 8 (r)
* Original Issue / Reopening listed for FRNs, 10s, 20s, 30s, and TIPS.
Net Issuance by Calendar Year Duration supply (10y equivalents)

Net of Net of Gross
Net Coupons Fed Net Bills Fed Fed Net of Fed
Fed Fed supply
CY 2019 1107 77 1030 77 170 -93 1703 58 1645
CY 2020 1733 2184 -451 2547 157 2391 2421 1434 987
CY 2021, GS 2735 960 1775 -194 0 -194 3144 666 2478
CY 2022, GS 2294 520 1774 -350 0 -350 2826 358 2469

CY 2023, GS 1796 0 1796 -50 0 -50 2794 0 2794
Net issuance per quarter Average monthly 10y equivalent supply ex Fed purchases, by
quarter
$bn Net coupons Net bills $bn $bn

$bn
1000 Net of Fed purchases Net of Fed purchases 1000 Issuance net of Fed purchases 2021 Average
250 250
800 800
200 200
600 600 150 150
400 400 100 100
200 200 50 50
0 0 0 0
-50 -50
-200 -200
-100 -100
-400 -400 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1Q1 2 3Q2 4 5Q3 6 7 Q48 9 Q1 11Q212 13Q314 15Q416
6c263eaea20c48939b3438992d02e983
2019 2020 2021 2022
2021 2022
Source: Haver Analytics, Goldman Sachs Global Investment Research
Free float (Treasuries outstanding less Fed and foreign official Bills as a share of Treasuries outstanding with GS forecasts
holdings) as % of GDP Gray shading denotes TBAC recommended 15-20% range
% of GDP Coupon free float Bill free float (RHS) % of GDP % of outstanding % of outstanding
42 24 30 30
Actual GS Forecast
22
40
20
38 25 25
18
36 16
14 20 20
34
12
32
10 15 15
30
8
28 6
Jan-17 Oct-17 Jul-18 Apr-19 Jan-20 Oct-20 Jul-21 10 10
2018 2019 2020 2021 2022 2023
21 May 2021 14
GS Term Premium Decomposition

1y Range of G10 10y Yields, by Term Premium and Expectations Components
% G10 10-Year Term Premium % % G10 10-Year Expectations %

1.00 1y Range of Estimates 1.00 1.80 1y Range 1.20
Left axis Right axis
1.60 Low
1.00
High 0.6
2.00 0.8
0.50 0.50 1.40 0.00 0.4
0.2
0.0
-0.2
-0.4
Last -0.6
-2.00 -0.8
0.80
1.20 Average
0.00 0.00
1.00 0.60
0.80 0.40
-0.50 -0.50
0.60
0.20
Low
0.40
-1.00 High 0.60
2.00 0.80 -1.00
0.00 0.40
0.20
0.00
-0.2 0.00
Last -0.4
-2.00 -0.6
-0.8 0.20
Average
0.00 -0.20
-1.50 -1.50
US AU NZ CA NO GB EA SE JP CH US AU NZ CA NO GB EA SE JP CH
Term Structure of Fitted Yields, by Component

% United States % Europe
2.50 Expectations Term Premium 1.00 Expectations Term Premium
Expectations, 1y ago Term Premium, 1y ago Expectations, 1y ago Term Premium, 1y ago
2.00
0.50
1.50
0.00
1.00
0.50
-0.50
0.00
-1.00
-0.50
6c263eaea20c48939b3438992d02e983
-1.00 -1.50
0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10
Years Years
% United Kingdom % Japan

1.50 Expectations Term Premium 0.20 Expectations Term Premium
Expectations, 1y ago Term Premium, 1y ago Expectations, 1y ago Term Premium, 1y ago
1.00 0.10
0.50 0.00
0.00 -0.10
-0.50 -0.20
-1.00 -0.30
0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10
Years Years
21 May 2021 15
2021 Trade Recommendations

GS Rates Trades
Active Entry Date Opened Latest Stop Target Performance
1. Pay 10y EONIA vs 10y CHF OIS 18-Dec-20 0.05 0.09 -0.05 0.20 +5 bps
2. Buy 1y5y5y USD Payers (levels in bp running of return) 05-Mar-21 0.00 -0.05 -0.15 0.25 -5 bps
3. Pay 20y JPY swaps 05-Mar-21 0.39 0.38 0.30 0.55 -1 bps
4. Buy 10y30y USD Payers (levels in bp running of return) 09-Apr-21 0.00 -0.01 -0.10 0.15 -1 bps
5. Sell 30y bunds 16-Apr-21 0.27 0.44 0.37 0.52 +16 bps
6. 2y1y/5y5y AUD swap curve steepeners 30-Apr-21 2.07 2.03 1.90 2.30 -5 bps
7. Long 7y UST-OIS spreads on the 2s7s20s spread fly 14-May-21 0.04 0.06 -0.03 0.13 +2 bps
8. Short 2y3y GBP real yields 21-May-21 -3.05 -3.05 -3.30 -2.50 +0 bps
Closed Entry Date Closed Performance
1. Long (1.65:1) vol-weighted 1y forward 5s30 steepener 11-Nov-20 22-Jan-21 +15 bps
2. Long 10y10y-2y2y HICP curve flatteners 11-Nov-20 1-Feb-21 +20 bps
3. 5s30s UST steepener into refunding 29-Jan-21 9-Feb-21 +6 bps
4. Long 3y1y US real yields 11-Nov-20 17-Feb-21 +29 bps
5. USD 1y forward 3s10s steepener (2:1 vol weighted) 22-Jan-21 26-Feb-21 -13 bps
6. Long 10s30s Bund steepener 22-Jan-21 26-Feb-21 +8 bps
7. Sell 2y RPI swaps 18-Dec-20 5-Mar-21 +0 bps
8. EDM3-M4 Flatteners (1.8:1 vol weighted) 19-Feb-21 18-Mar-21 +6 bps

9. Buy 5y30y USD Payers (open/stop/target in % perf) 12-Feb-21 9-Apr-21 +16 bps
10. USD 3m fwd 7s30s conditional bear flattener 5-Feb-21 16-Apr-21 +13 bps
11. 10s30s Bund steepener 12-Mar-21 16-Apr-21 +3 bps
12. USD 3m fwd 5s30s conditional bear steepener 16-Apr-21 14-May-21 +3 bps
13. Long 7y swap spreads on the 2s7s30s spread fly 30-Apr-21 14-May-21 +3 bps
14. 3y7y Breakeven Wideners 5-Mar-21 20-May-21 +32 bps
15. Short 5y GBP real yields 2-Apr-21 21-May-21 -6 bps
Note: Potential profit/loss estimates are given as per unit of duration risk, through yesterday's close.
6c263eaea20c48939b3438992d02e983
21 May 2021 16
Disclosure Appendix
Reg AC
We, Praveen Korapaty, George Cole, William Marshall, Avisha Thakkar and Simon Freycenet, hereby certify that all of the views expressed in this report
accurately reflect our personal views, which have not been influenced by considerations of the firm’s business or client relationships.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.
Disclosures
Regulatory disclosures
Disclosures required by United States laws and regulations
See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or
co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-managed
public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. Goldman Sachs trades or may trade as a
principal in debt securities (or in related derivatives) of issuers discussed in this report.
The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts,
professionals reporting to analysts and members of their households from owning securities of any company in the analyst’s area of coverage.
Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking revenues. Analyst
as officer or director: Goldman Sachs policy generally prohibits its analysts, persons reporting to analysts or members of their households from
serving as an officer, director or advisor of any company in the analyst’s area of coverage. Non-U.S. Analysts: Non-U.S. analysts may not be
associated persons of Goldman Sachs & Co. LLC and therefore may not be subject to FINRA Rule 2241 or FINRA Rule 2242 restrictions on
communications with subject company, public appearances and trading securities held by the analysts.
Additional disclosures required under the laws and regulations of jurisdictions other than the United States
The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws and
regulations. Australia: Goldman Sachs Australia Pty Ltd and its affiliates are not authorised deposit-taking institutions (as that term is defined in the
Banking Act 1959 (Cth)) in Australia and do not provide banking services, nor carry on a banking business, in Australia. This research, and any access to
it, is intended only for “wholesale clients” within the meaning of the Australian Corporations Act, unless otherwise agreed by Goldman Sachs. In
producing research reports, members of the Global Investment Research Division of Goldman Sachs Australia may attend site visits and other
meetings hosted by the companies and other entities which are the subject of its research reports. In some instances the costs of such site visits or
meetings may be met in part or in whole by the issuers concerned if Goldman Sachs Australia considers it is appropriate and reasonable in the specific
circumstances relating to the site visit or meeting. To the extent that the contents of this document contains any financial product advice, it is general
advice only and has been prepared by Goldman Sachs without taking into account a client’s objectives, financial situation or needs. A client should,
before acting on any such advice, consider the appropriateness of the advice having regard to the client’s own objectives, financial situation and needs.
A copy of certain Goldman Sachs Australia and New Zealand disclosure of interests and a copy of Goldman Sachs’ Australian Sell-Side Research
Independence Policy Statement are available at: https://www.goldmansachs.com/disclosures/australia-new-zealand/index.html. Brazil: Disclosure
information in relation to CVM Resolution n. 20 is available at https://www.gs.com/worldwide/brazil/area/gir/index.html. Where applicable, the
Brazil-registered analyst primarily responsible for the content of this research report, as defined in Article 20 of CVM Resolution n. 20, is the first author
named at the beginning of this report, unless indicated otherwise at the end of the text. Canada: Goldman Sachs Canada Inc. is an affiliate of The
Goldman Sachs Group Inc. and therefore is included in the company specific disclosures relating to Goldman Sachs (as defined above). Goldman Sachs
Canada Inc. has approved of, and agreed to take responsibility for, this research report in Canada if and to the extent that Goldman Sachs Canada Inc.
disseminates this research report to its clients. Hong Kong: Further information on the securities of covered companies referred to in this research
may be obtained on request from Goldman Sachs (Asia) L.L.C. India: Further information on the subject company or companies referred to in this
research may be obtained from Goldman Sachs (India) Securities Private Limited, Research Analyst - SEBI Registration Number INH000001493, 951-A,
6c263eaea20c48939b3438992d02e983
Rational House, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India, Corporate Identity Number U74140MH2006FTC160634, Phone +91 22
6616 9000, Fax +91 22 6616 9001. Goldman Sachs may beneficially own 1% or more of the securities (as such term is defined in clause 2 (h) the Indian
Securities Contracts (Regulation) Act, 1956) of the subject company or companies referred to in this research report. Japan: See below. Korea: This
research, and any access to it, is intended only for “professional investors” within the meaning of the Financial Services and Capital Markets Act,
unless otherwise agreed by Goldman Sachs. Further information on the subject company or companies referred to in this research may be obtained
from Goldman Sachs (Asia) L.L.C., Seoul Branch. New Zealand: Goldman Sachs New Zealand Limited and its affiliates are neither “registered banks”
nor “deposit takers” (as defined in the Reserve Bank of New Zealand Act 1989) in New Zealand. This research, and any access to it, is intended for
“wholesale clients” (as defined in the Financial Advisers Act 2008) unless otherwise agreed by Goldman Sachs. A copy of certain Goldman Sachs
Australia and New Zealand disclosure of interests is available at: https://www.goldmansachs.com/disclosures/australia-new-zealand/index.html. Russia:
Research reports distributed in the Russian Federation are not advertising as defined in the Russian legislation, but are information and analysis not
having product promotion as their main purpose and do not provide appraisal within the meaning of the Russian legislation on appraisal activity.
Research reports do not constitute a personalized investment recommendation as defined in Russian laws and regulations, are not addressed to a
specific client, and are prepared without analyzing the financial circumstances, investment profiles or risk profiles of clients. Goldman Sachs assumes
no responsibility for any investment decisions that may be taken by a client or any other person based on this research report. Singapore: Goldman
Sachs (Singapore) Pte. (Company Number: 198602165W), which is regulated by the Monetary Authority of Singapore, accepts legal responsibility for
this research, and should be contacted with respect to any matters arising from, or in connection with, this research. Taiwan: This material is for
reference only and must not be reprinted without permission. Investors should carefully consider their own investment risk. Investment results are the
responsibility of the individual investor. United Kingdom: Persons who would be categorized as retail clients in the United Kingdom, as such term is
defined in the rules of the Financial Conduct Authority, should read this research in conjunction with prior Goldman Sachs research on the covered
companies referred to herein and should refer to the risk warnings that have been sent to them by Goldman Sachs International. A copy of these risks
warnings, and a glossary of certain financial terms used in this report, are available from Goldman Sachs International on request.
European Union and United Kingdom: Disclosure information in relation to Article 6 (2) of the European Commission Delegated Regulation (EU)
(2016/958) supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council (including as that Delegated Regulation is
implemented into United Kingdom domestic law and regulation following the United Kingdom’s departure from the European Union and the European
Economic Area) with regard to regulatory technical standards for the technical arrangements for objective presentation of investment
recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of
conflicts of interest is available at https://www.gs.com/disclosures/europeanpolicy.html which states the European Policy for Managing Conflicts of
Interest in Connection with Investment Research.
Japan: Goldman Sachs Japan Co., Ltd. is a Financial Instrument Dealer registered with the Kanto Financial Bureau under registration number Kinsho
21 May 2021 17
69, and a member of Japan Securities Dealers Association, Financial Futures Association of Japan and Type II Financial Instruments Firms Association.
Sales and purchase of equities are subject to commission pre-determined with clients plus consumption tax. See company-specific disclosures as to
any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese Securities Finance
Company.
Global product; distributing entities

The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs on a global basis.
Analysts based in Goldman Sachs offices around the world produce research on industries and companies, and research on macroeconomics,
currencies, commodities and portfolio strategy. This research is disseminated in Australia by Goldman Sachs Australia Pty Ltd (ABN 21 006 797 897); in
Brazil by Goldman Sachs do Brasil Corretora de Títulos e Valores Mobiliários S.A.; Public Communication Channel Goldman Sachs Brazil: 0800 727 5764
and / or contatogoldmanbrasil@gs.com. Available Weekdays (except holidays), from 9am to 6pm. Canal de Comunicação com o Público Goldman Sachs
Brasil: 0800 727 5764 e/ou contatogoldmanbrasil@gs.com. Horário de funcionamento: segunda-feira à sexta-feira (exceto feriados), das 9h às 18h; in
Canada by either Goldman Sachs Canada Inc. or Goldman Sachs & Co. LLC; in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs
(India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in
New Zealand by Goldman Sachs New Zealand Limited; in Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company
Number: 198602165W); and in the United States of America by Goldman Sachs & Co. LLC. Goldman Sachs International has approved this research in
connection with its distribution in the United Kingdom.
Effective from the date of the United Kingdom’s departure from the European Union and the European Economic Area (“Brexit Day”) the following
information with respect to distributing entities will apply:
Goldman Sachs International (“GSI”), authorised by the Prudential Regulation Authority (“PRA”) and regulated by the Financial Conduct Authority
(“FCA”) and the PRA, has approved this research in connection with its distribution in the United Kingdom.
European Economic Area: GSI, authorised by the PRA and regulated by the FCA and the PRA, disseminates research in the following jurisdictions
within the European Economic Area: the Grand Duchy of Luxembourg, Italy, the Kingdom of Belgium, the Kingdom of Denmark, the Kingdom of
Norway, the Republic of Finland, Portugal, the Republic of Cyprus and the Republic of Ireland; GS -Succursale de Paris (Paris branch) which, from Brexit
Day, will be authorised by the French Autorité de contrôle prudentiel et de resolution (“ACPR”) and regulated by the Autorité de contrôle prudentiel et
de resolution and the Autorité des marches financiers (“AMF”) disseminates research in France; GSI - Sucursal en España (Madrid branch) authorized in
Spain by the Comisión Nacional del Mercado de Valores disseminates research in the Kingdom of Spain; GSI - Sweden Bankfilial (Stockholm branch) is
authorized by the SFSA as a “third country branch” in accordance with Chapter 4, Section 4 of the Swedish Securities and Market Act (Sw. lag
(2007:528) om värdepappersmarknaden) disseminates research in the Kingdom of Sweden; Goldman Sachs Bank Europe SE (“GSBE”) is a credit
institution incorporated in Germany and, within the Single Supervisory Mechanism, subject to direct prudential supervision by the European Central
Bank and in other respects supervised by German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) and
Deutsche Bundesbank and disseminates research in the Federal Republic of Germany and those jurisdictions within the European Economic Area
where GSI is not authorised to disseminate research and additionally, GSBE, Copenhagen Branch filial af GSBE, Tyskland, supervised by the Danish
Financial Authority disseminates research in the Kingdom of Denmark; GSBE - Sucursal en España (Madrid branch) subject (to a limited extent) to local
supervision by the Bank of Spain disseminates research in the Kingdom of Spain; GSBE - Succursale Italia (Milan branch) to the relevant applicable
extent, subject to local supervision by the Bank of Italy (Banca d’Italia) and the Italian Companies and Exchange Commission (Commissione Nazionale
per le Società e la Borsa “Consob”) disseminates research in Italy; GSBE - Succursale de Paris (Paris branch), supervised by the AMF and by the ACPR
disseminates research in France; and GSBE - Sweden Bankfilial (Stockholm branch), to a limited extent, subject to local supervision by the Swedish
Financial Supervisory Authority (Finansinpektionen) disseminates research in the Kingdom of Sweden.
General disclosures
This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we
consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and
forecasts contained herein are as of the date hereof and are subject to change without prior notification. We seek to update our research as
appropriate, but various regulations may prevent us from doing so. Other than certain industry reports published on a periodic basis, the large majority
of reports are published at irregular intervals as appropriate in the analyst’s judgment.
6c263eaea20c48939b3438992d02e983
Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment
banking and other business relationships with a substantial percentage of the companies covered by our Global Investment Research Division.
Goldman Sachs & Co. LLC, the United States broker dealer, is a member of SIPC (https://www.sipc.org).
Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and principal
trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, principal trading desks and
investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research.
We and our affiliates, officers, directors, and employees, will from time to time have long or short positions in, act as principal in, and buy or sell, the
securities or derivatives, if any, referred to in this research, unless otherwise prohibited by regulation or Goldman Sachs policy.
The views attributed to third party presenters at Goldman Sachs arranged conferences, including individuals from other parts of Goldman Sachs, do not
necessarily reflect those of Global Investment Research and are not an official view of Goldman Sachs.
Any third party referenced herein, including any salespeople, traders and other professionals or members of their household, may have positions in the
products mentioned that are inconsistent with the views expressed by analysts named in this report.
This research is focused on investment themes across markets, industries and sectors. It does not attempt to distinguish between the prospects or
performance of, or provide analysis of, individual companies within any industry or sector we describe.
Any trading recommendation in this research relating to an equity or credit security or securities within an industry or sector is reflective of the
investment theme being discussed and is not a recommendation of any such security in isolation.
This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be
illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of
individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if
appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them
may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.
Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.
Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.
Investors should review current options and futures disclosure documents which are available from Goldman Sachs sales representatives or at
https://www.theocc.com/about/publications/character-risks.jsp and
21 May 2021 18
https://www.fiadocumentation.org/fia/regulatory-disclosures_1/fia-uniform-futures-and-options-on-futures-risk-disclosures-booklet-pdf-version-2018.
Transaction costs may be significant in option strategies calling for multiple purchase and sales of options such as spreads. Supporting documentation
will be supplied upon request.
Differing Levels of Service provided by Global Investment Research: The level and types of services provided to you by the Global Investment
Research division of GS may vary as compared to that provided to internal and other external clients of GS, depending on various factors including your
individual preferences as to the frequency and manner of receiving communication, your risk profile and investment focus and perspective (e.g.,
marketwide, sector specific, long term, short term), the size and scope of your overall client relationship with GS, and legal and regulatory constraints.
As an example, certain clients may request to receive notifications when research on specific securities is published, and certain clients may request
that specific data underlying analysts’ fundamental analysis available on our internal client websites be delivered to them electronically through data
feeds or otherwise. No change to an analyst’s fundamental research views (e.g., ratings, price targets, or material changes to earnings estimates for
equity securities), will be communicated to any client prior to inclusion of such information in a research report broadly disseminated through electronic
publication to our internal client websites or through other means, as necessary, to all clients who are entitled to receive such reports.
All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client websites. Not all
research content is redistributed to our clients or available to third-party aggregators, nor is Goldman Sachs responsible for the redistribution of our
research by third party aggregators. For research, models or other data related to one or more securities, markets or asset classes (including related
services) that may be available to you, please contact your GS representative or go to https://research.gs.com.
Disclosure information is also available at https://www.gs.com/research/hedge.html or from Research Compliance, 200 West Street, New York, NY
10282.
© 2021 Goldman Sachs.
No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written
consent of The Goldman Sachs Group, Inc.
6c263eaea20c48939b3438992d02e983
21 May 2021 19

Global Rates Trader - A Taper Trade Preview

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Global Rates Trader - A Taper Trade Preview

Uploaded by

Copyright:

Available Formats

21 May 2021 | 3:10PM EDT

A taper trade preview

United States/North America

st. dev. st. dev. 1.50 % % 1.50

Other G10 Markets

Latest Thematic Research:

An earlier reduction in Treasury supply - 27 Apr 2021

How big is the market-policy rate forecasts gap? - 8 Apr 2021

The impact of retained holdings on German issuance - 1 Apr 2021

Latest Global Markets Dailies:

French Presidential Elections - 2017 All Over Again? - 19 May 2021

US Yields Beyond the Q2 Growth Peak - 12 May 2021

High forecast uncertainty, low yield sensitivity - 6 May 2021

Valuing EUR Sovereign Credit Curves - 28 April

Core Views Recommendation Entry Date

Source: Goldman Sachs Global Investment Research

Deviation from Forwards

Source: Goldman Sachs Global Investment Research

Central Bank Dashboard

Hikes priced over 1y after liftoff (bp)

bp Today vs. 3m Ago bp

USD EUR GBP JPY

100 200 100

Percent of GDP Percent of GDP % %

Positioning and Flows Monitor

Ratio Ratio Ratio Ratio

4 Sell threshold 4 5 Sell threshold 5

-10 -10 -25 -25

Source: Goldman Sachs Global Investment Research

Dealer 1w Chg 2.8 0.5 -1.1 6.8 0.1 -1.2 4.8

Net positions in Eurodollars Net positions in UST futures

% of OI Eurodollar Positions % of OI %of OI Treasury Positions % of OI

6 Spec ED LF ED AM + Other ED 6 Spec UST LF UST AM + Other UST

$bn. mm/bp $bn. $bn.

150 1,180 1,180

NY Fed Custody Holdings US TIC Treasury Flows

Marketable US Treasuries 12m change in valuation-adjusted holdings of USTs, by holder of debt

$bn. $bn. $bn. $bn.

2,950 2,950 -140 -140

¥tn. ¥tn. $bn $bn

Outright Carry (3m)

Source: Goldman Sachs Global Investment Research

Source: Goldman Sachs Global Investment Research

Treasury Supply Monitor

Monthly Auction Amounts at End of Calendar Year ($ billions)

Net Issuance by Calendar Year Duration supply (10y equivalents)

CY 2022, GS 2294 520 1774 -350 0 -350 2826 358 2469

$bn Net coupons Net bills $bn $bn

400 400 100 100

Source: Haver Analytics, Goldman Sachs Global Investment Research

GS Term Premium Decomposition

% G10 10-Year Term Premium % % G10 10-Year Expectations %

Term Structure of Fitted Yields, by Component

% United Kingdom % Japan

Source: Goldman Sachs Global Investment Research

2021 Trade Recommendations

8. EDM3-M4 Flatteners (1.8:1 vol weighted) 19-Feb-21 18-Mar-21 +6 bps

Source: Goldman Sachs Global Investment Research

Global product; distributing entities

You might also like