Goldman Sachs: Upside EGB Yield Risk Despite Summer Supply Lull

Goldman Sachs note that "European sovereign bond issuance is likely to
decline in August. Based on historical averages, the reduction in EMU-4
issuance would be around EUR8bn/week vs the underlying monthly
average on current issuance projections. At the same time, the ECB has
historically reduced its rate of purchases by around 30% in August; at the
current pace of purchases that would translate to a reduction of also
around EUR8bn/week. These shifts would be largely offsetting for the net
supply picture, and in addition we think there is limited evidence that
anticipated supply variation has much of a market impact. However,
uncertainty on both the issuance schedule and ECB behavior remains
high in August. With risks still tilted towards additional issuance in an
environment of lower summer liquidity, together with the ongoing recovery
in data, we think that risk reward continues to favor a duration
underweight into the end of Q3."