Goldman Avoiding Steepener Plays Until Obvious Catalyst Becomes Evident

Goldman Sachs note that “although the cash curves are closing in on recent troughs, the OIS and SOFR swap curves are still some distance away.”

• “Some of this weakness is likely the result of an anticipation of heavy front-end supply, but we expect it will not remain contained to front-end swap spreads as the full extent of supply increases becomes clear.”
• “A more fundamental issue however is that investors seem content to continue to defer updating their neutral rate priors, and instead appear to respond to evidence of economic resilience by simply pushing easing further into the future.”
• “As a result, we refrain from adding steepeners in the absence of an obvious catalyst - either a clear deterioration in economic data, or a 'patient' Fed stance that allows rebuilding of risk premium.”