Goldman Sachs "anticipated that the Fed....>

US SWAPS: Goldman Sachs "anticipated that the Fed would reduce asset purchases

to a steady state of $80-$120bn/month rather than terminate buying upon

restoring normalcy to Treasury market functioning. The Fed will buy $40bn over

the upcoming week (an average $8bn/day), so our expectation implies tapering of

another $10-20bn in the weekly pace. At the steady state, we project the Fed

will have absorbed about $2.5tn of USTs vs. $4tn of total issuance. In our

updated projections, we now expect the split of net issuance across bills,

nominal coupons, TIPS & FRNs to be about $2.3tn, $1.4tn, $100bn & $220bn

respectively. While supply ex-Fed is still sig. larger than before the shock on

a notional basis, because we expect a larger portion of the initial increases to

occur at the front end, on a net duration supply basis, the increase is more

modest ($141bn 10s/month on average from May-December, as opposed to an average

of $139bn 10s in 2019). Despite this, we expect that spreads should widen given

that investors aren't getting compensated for the asymmetric duration risk they

are taking-we expect downward pressure on swap spreads, particularly at the

long-end, and recommend selling 30y OIS swap spreads."