Goldman: QRA Brings No Relief On Duration Supply, Initiate 7s30s Steepener Play

Late on Friday (in the wake of the QRA) Goldman Sachs wrote “one consequence of such elevated duration supply is a more pronounced “flow” effect around primary U.S. Tsy issuance. Our analysis shows that historically, yields have typically cheapened (and swap spreads narrowed) in the 1-2 weeks period leading up to the auction, particularly at longer maturities.”

• “In terms of yield curves, beta-weighted 7s30s (and 10s30s) curve has more often than not steepened ahead of 30y refunding auctions, and the effect has been particularly pronounced in periods of high issuance - median steepening has been 8-10bp during prior periods of duration supply increases similar to the current quarter.”
• “The pattern is also more likely to be observed in February refundings, given the 30y TIPS auction later in the month. We recommend taking advantage of the post-payrolls yield curve flattening to set tactical level-neutral 7s30s curve steepeners.”