Goldman: Yield Reset In Right Direction, But Ahead Of Schedule

Goldman Sachs write “this month’s rates selloff has largely proceeded along the lines we’d expected to see this year. Longer-dated forwards have participated in the selloff, as the market has moved away from the sort of front-loading seen last year, with some build in inflation risk accompanying higher real yields.”

• “The move has come somewhat ahead of our anticipated schedule, with yields reaching levels more consistent with our Q2 forecasts. A combination of better growth sentiment and hawkish policy risk appear to have contributed to the move.”
• “On the latter, although growth resilience has assumed a more prominent role in driving further yield repricing, there is still the potential that FCI easing can become counter-productive and ultimately require even more policy tightening (particularly if inflation is slow to moderate) - something that the February FOMC minutes acknowledged.”
• “Given the extent and speed of the repricing, we think the market has already priced a fair amount of good growth news and will need upcoming data releases to provide confirmation before yields can establish another material leg higher. Near-term, this suggests that yields could consolidate somewhat, and the risk/reward to staying short is not compelling. Our medium-term view remains one of higher yields, however, with the cycle peak yet to come this year.”