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Goldman: Breakeven Downdraft Presents Opportunity For Tactical Longs

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Late on Friday Goldman Sachs noted that “where nominal yields felt some push/pull from the combination of soft inflation and hawkish Fed outcome, the news flow was unequivocally bearish for traded inflation.”

  • “Breakevens were already lagging the recent rebound in oil prices and solid tone to risk assets heading into last week; this was compounded by the sharp sell-off on Wednesday and Thursday.”
  • “Beyond the mechanical reset due to the CPI miss, the market priced in a softer sequential path over the rest of the year while also resetting the forwards further out, consistent with investors incorporating some combination of persistence to the inflation reading and a hawkish assessment of the Fed.”
  • “While we wouldn’t dismiss this offhand, we think stretched valuations and known risk events offer an argument in favour of breakeven longs here.”
  • As a result, they recommended tactical longs in 5-Year breakevens, targeting 2.30%. That market has moved in their favour early today.
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Late on Friday Goldman Sachs noted that “where nominal yields felt some push/pull from the combination of soft inflation and hawkish Fed outcome, the news flow was unequivocally bearish for traded inflation.”

  • “Breakevens were already lagging the recent rebound in oil prices and solid tone to risk assets heading into last week; this was compounded by the sharp sell-off on Wednesday and Thursday.”
  • “Beyond the mechanical reset due to the CPI miss, the market priced in a softer sequential path over the rest of the year while also resetting the forwards further out, consistent with investors incorporating some combination of persistence to the inflation reading and a hawkish assessment of the Fed.”
  • “While we wouldn’t dismiss this offhand, we think stretched valuations and known risk events offer an argument in favour of breakeven longs here.”
  • As a result, they recommended tactical longs in 5-Year breakevens, targeting 2.30%. That market has moved in their favour early today.