Goldman: Longer-Dated Vega Should Outperform On Relative Basis

Goldman Sachs have noted that "with markets looking through recent data as noisy, yields have consolidated into a range. Both implied and delivered vols across the surface have declined from recent highs. With no clear catalyst in sight, a period of continued yield consolidation will mean further downward pressure on delivered vol. As a result, we think that long vol. exposure for now is also best positioned with carry considerations in mind as well. On this, we note that although the "level" component of the vol. surface has been a headwind recently, long-dated vega has been relatively better supported in the last month or so, consistent with what the broader level of rates, vol., and callable supply would imply. Overall, we continue to think that long expiry long-end payers (e.g. 10Y30) offer reasonable appeal from a carry perspective given the shape of the vol. surface and forward curve, and expect the decline in long-dated callable supply this year (compared to last year's elevated levels) to be an incremental positive for this part of the surface over the months ahead. Still, with near term range consolidation likely, we recommend selling 3M30Y straddles on a tactical basis to offset potential vol premium compression."