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EGBS: Goldman Lean Long EUR Duration

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Late on Friday Goldman Sachs noted that they “think domestic fundamentals played a limited role in the recent sell-off in European rates, and instead believe the shifting macro assessment out of the U.S. remains the primary driver of duration.”

  • “While we do see downside to European yields, some stabilisation in global duration is likely necessary for outright longs to work.”
  • “Economic divergence between the Euro area and the U.S. - which we think is the right fundamental view - is increasingly priced.”
  • They see “paths for European rates to rally absent a bullish impulse from the U.S., but those rely on either a further deterioration in Euro area fundamentals, or a shift in reaction function from the ECB.”
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Late on Friday Goldman Sachs noted that they “think domestic fundamentals played a limited role in the recent sell-off in European rates, and instead believe the shifting macro assessment out of the U.S. remains the primary driver of duration.”

  • “While we do see downside to European yields, some stabilisation in global duration is likely necessary for outright longs to work.”
  • “Economic divergence between the Euro area and the U.S. - which we think is the right fundamental view - is increasingly priced.”
  • They see “paths for European rates to rally absent a bullish impulse from the U.S., but those rely on either a further deterioration in Euro area fundamentals, or a shift in reaction function from the ECB.”