Goldman Sachs have "previously noted the....>

US TSYS: Goldman Sachs have "previously noted the significant erosion in hedge

value of nominal bonds as yields have declined towards their respective ELBs.

The rolling beta of daily changes in 10y and 30y UST yields to changes in the

S&P index have diminished since March, though more recently, 30y yields have

been more sensitive to risk assets relative to 10s (historically, this was the

other way around). This raises the possibility that 30y USTs may start to be

viewed as portfolio hedges, much as UST 10s were before March, and lead to

incremental demand at the long end. Combined with what we believe had been a

fairly widespread short base at the long end (given the popularity of 5s30s

yield curve steepeners), demand for long-end USTs has been robust, leaving 30y

swap spreads better supported in recent months even as Treasury supply dynamics

have turned more negative. So long as yields remain low, we suspect this

incremental demand at the long end may persist, though if the economic recovery

progresses along our economists' baseline forecast, that demand could migrate

back in on the curve. Over the medium term, we see the supply outlook as

consistent with building pressure on longer-term swap spreads."