VIEW: Goldman Sachs note that "front-end....>

US TSYS: VIEW: Goldman Sachs note that "front-end swap spreads have remained

stable despite increased Treasury free float and several months of heavy bill

issuance. A significant factor, in our view, has been substantial bank demand

for Treasuries, with commercial banks net buyers of about $175bn USTs since the

start of April. Commercial bank UST buying is typically concentrated in shorter

maturities (5y and in), leaving USTs in this sector well-supported versus swaps

- this is visible in the correlation between bank purchases and the residual

from our spread model. We expect bank demand to remain elevated through the rest

of the year. Another potential tailwind going forward is bill supply, which

could decline faster than our current projections given that Treasury's cash

balances are well in excess of their already elevated target, even accounting

for 'Phase 4' fiscal package. The combination of robust bank demand and a

potential earlier-than-expected bill paydown should allow 2s to richen a further

5bp or so versus OIS in the coming months. We therefore recommend buying 2y USTs

versus OIS on a tactical basis."