Goldman: Implications Of A Sharp Rise In Real Rates

Goldman Sachs note investor interest in "the potential for and risks of higher US real rates" (judged by fast-increasing TIPS yields) ahead amid US fiscal stimulus.

• Having looked at historic episodes of real rate spikes, Goldman concludes the degree of broader market impact "matters whether higher real rates are 'growth" or "policy' driven".
• So if spurred by improving economic growth expectations then US equities and credit likely to see only a limited impact, whereas shifts driven by hawkish monetary policy are more impactful. The latter includes for example the 2013 'Taper Tantrum'.
• In these real rate spike episodes, generally: US real and nominal rates rose across the curve; USD strengthened; US equity indices rose; credit spreads were mixed; gold lower, oil higher; EM equities weakened in USD terms.
• Goldman sees tech stocks as vulnerable to higher real rates whereas bank stocks outperform; sees protection against higher rates via "tilting portfolios toward less rate-sensitive areas", gold (presumably, they mean, to the downside) and USD/JPY offer "good optionality for scenarios in which real rates rise more quickly". US yields likely to rise relative to European yields.