VIEW: Goldman Sachs note that "U.S.....>

US TSYS/TIPS: VIEW: Goldman Sachs note that "U.S. traded inflation has staged an

impressive rally, with 5y inflation swaps up at least 20bp in each of Apr, May &

Jun. The bulk of the improvement in spot levels of traded inflation has come

from the very front-end of the curve, with 1y inflation swaps up about 120bp

since the end of May, while 1y4y inflation is up a more modest 13bp over that

period. While this does reflect an improved outlook on the path for CPI fixings,

base effects have played a major role, the substantial Apr decline in NSA CPI

has rolled into the reference index; this change alone implies a 95bp

improvement in 1y swaps & ~20bp for 5y swaps across this month. Mkts have

upgraded their exp. for CPI, consistent with continued improvement in the growth

outlook (which tends to correlate with front-end led improvements in traded

inflation). We believe there is still room for further upside-the mkt-implied

headline inflation is still around 0.15% in Y/Y terms for '20 & just north of 1%

for '21 (vs. our economists' projections of 1.3% & 1.7% respectively). To

position directly for this, we recommend buying Apr21 TIPS hedged with a short

in the Mar21 RBOB future (hedge ratio of 29 contracts/$100mm notional)."