Goldman Trim Real Rate Exposure

Goldman Sachs note that the "upcoming US election and positioning could pose a risk re: U.S. real rate longs, with both real and inflation components of yields participating in a selloff, particularly in the event of a Democratic sweep. The risk to real rates longs also emerges in the event of a contested election. Here inflation would likely trade lower with risk assets, which given the proximity of nominal rates to the Fed's ELB, implies higher real yields. Therefore, we recommend trimming real rate longs on a tactical basis, and would look to enter longs after the election-related event risk has passed. We also suggest taking profits on our 5s10s real rate steepener recommendation; while the steepener could in theory perform well in a Democratic sweep, the immediate reaction may simply be a parallel shift (as was the case following the 2016 election)."