Goldman: Long Term Yields Too Rich In A Non-Recessionary Baseline

Goldman Sachs write “in addition to what we believe is excessive easing priced in at the front end, we also think the sharp decline in medium and longer term yields over the past month is overdone.”

• “The likely culprits for this are either investors incorrectly anchoring to the last cycle, or overweighting of recession odds.”
• “This view, combined with our belief that markets are underpricing hike extension risk and overpricing the odds and magnitude of cuts lead us to maintain our 4.30% 10-Year yield forecast for end of ‘23 despite the recent bond market rally.”
• “As a way to monetize higher long run rate view, we recommend selling 6m5y5y midcurve receivers - although implied vol has come off recent highs, we believe the breakeven level on the downside remains attractive.”