Goldman: Mixed Signals Ahead Of Jobs Report

Goldman Sachs note that “price action was mixed last week amid modestly softer activity data, some further weakness in auctions and modest relief on the inflation news.”

• “Ahead of the payrolls report we expect yields to remain within a fairly narrow range.”
• “With inflation gradually easing, the bar for Fed hikes remains high which should curb any right tails on the rates distribution, while the lack of more significant inflation progress alongside still-solid growth limits the extent of any rally – although we continue to think any signs of growth or labour market weakness presents asymmetric risks for yields to move lower – we continue to like long 5y vs 2y and 10y.”
• “This macro set up should favour rates volatility suppression, although given implied vol already at cyclical lows the case for vol shorts has diminished somewhat, particularly ahead of key macro events including payrolls and the June FOMC meeting, in addition to election-related uncertainty.”