Goldman Sachs note that "real yields have...>

US TSYS: Goldman Sachs note that "real yields have steadily declined in the

months following the policy rate hitting the ZLB. Despite the sharp declines, we

believe front/intermediate real yields can decline further so long as the Fed

offers up strong fwd guidance & the econ recovery remains on track. In such a

scenario, we see 5y real yields declining at least another ~50bp over the next

year. While we expect 5y real yields to continue lower, 10y & 30y real yields

will likely increase from current levels over the next year. Fwd rates are well

below estimates of the natural rate of interest in the US, suggesting that mkts

either have a more downbeat view on the level, or are requiring significantly

negative real risk premia-neither of which are sustainable in a continued

recovery. To get forward rates towards estimates of r*, our assumptions for 5y

real yields would imply that 10y real yields would have to be at least 15-20bp

higher than current levels. We therefore recommend a 5s10s real yield curve

steepener, which combines the above views for both 5s & 10s. The risk to the

trade is a sig. deterioration in the econ outlook. The 5s10s steepener is a less

vol. version of the 5s30s TIPS steepener we had prev. recommended."