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1 May 2013
Forex Flash: Nearing the End of the Rally - Goldman Sachs
FXstreet.com (Barcelona) - Goldman Sachs analysts note that fixed income markets have rallied since mid-March, and intermediate to long dated government bond yields in the advanced economies remain close to historical lows.
They believe that the factors that led to the decline in yields are temporary and will revert over the next three months. They recently recommended initiating a tactical short position on 10-year USTs for a yield target of around 2.1% and a tight stop on a close below 1.6%. They note that this trade is now close to their stop-loss, which leaves the US bond market even more stretched relative to its macro underpinnings and they now would now go short 5-year German bonds at 31bp, for a target of 60bp and a stop at 15bp. They also continue to recommend receiving 5-year Swedish fixed rates against those in the Euro area, and being long 5-year Australia vs. Canada. Finally, they write. “In EMU bond markets, Italy has performed strongly after suffering a setback in the wake of the general elections. Taking advantage of very stretched relative valuations, we recommend being long 10-year Italian BTPs against French OATs for an initial target of 180bp. We also remain constructive on Portugal.”
They believe that the factors that led to the decline in yields are temporary and will revert over the next three months. They recently recommended initiating a tactical short position on 10-year USTs for a yield target of around 2.1% and a tight stop on a close below 1.6%. They note that this trade is now close to their stop-loss, which leaves the US bond market even more stretched relative to its macro underpinnings and they now would now go short 5-year German bonds at 31bp, for a target of 60bp and a stop at 15bp. They also continue to recommend receiving 5-year Swedish fixed rates against those in the Euro area, and being long 5-year Australia vs. Canada. Finally, they write. “In EMU bond markets, Italy has performed strongly after suffering a setback in the wake of the general elections. Taking advantage of very stretched relative valuations, we recommend being long 10-year Italian BTPs against French OATs for an initial target of 180bp. We also remain constructive on Portugal.”