Goldman Advises Outright Short on 5 Year Treasury With 2.3% Target Or Vampire Squid Vs Pimco?

Tyler Durden's picture

Goldman appears to be in full freak out mode today. After the bank had been positioned for a smooth, low-vol economic reflation mode, complete with long stock and short bond exposure, the recent volatility has blown up Goldman's trades right in its face. Earlier we noted that the FX desk advised on a long EURUSD trade with a 1.50 target following the surge in FX vole. And while it is unclear if the jump in vol across all risk assets is enough to cripple the bank like it did in May 2010 when Goldman disclosed massive trading losses on its variance swap trade, the bank appears to have suffered some major damage on its treasury curve exposure following the recent tightening. As a result Francesco Garzarelli has just released a trade update, advising clients to go short the 5 Year at 1.936% with a 2.30% target and a stop at 1.80%. As usual, since that would mean Goldman is now accumulating 5 Year inventory, it appears we will soon have a rather dramatic duel between the two biggest Wall Street titans: PIMCO and Goldman, at least as pertains to their outlook on rates.

From Goldman Sachs:

Trade Update: Go Short 5-yr US Treasuries, as Yields Price Excessive Growth Damage

Escalating geopolitical risks in the Middle East and North Africa, coupled with the most recent devastating events in Japan, have pushed global bond yields considerably lower. The combination of more hawkish European central banks and greater flight-to-quality flows being channelled into the Treasury market has meant that US Treasuries have considerably outperformed their European counterparts. The 5-year sector has outperformed in this rally, despite the fact that real rates are already very low and that growth expectations matter relatively more than for longer durations.

Meanwhile, US economic data over the same period suggest a less friendly inflation-growth mix for US rates. In particular, business surveys are now consistent with GDP growth of well above 4%, while core inflation has continued to edge higher.

To be sure, we still see core inflation staying close to 1% for the foreseeable future and we expect the Fed to remain comfortable with the inflation outlook, given the very high degree of economic slack. But the fact that US rates have rallied strongly, to well below our near-term forecasts, and against the grain of recent macro data, offers a good tactical opportunity to pay rates. We recommend going short 5-yr US Treasuries at 1.936% for a potential target of 2.30% and a close below 1.80%.

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bingaling's picture

The more rates drop the less strength the dollar has - lines up with their other call for euro at 1.5 against dollar - Two insiders on opposite sides - Thing is Exgoldman execs are everywhere where goldman needs them to be .
3 to one odds Pimco losses

egdeh orez's picture

Since we're on the topic of Goldman... so JPM Is buying back shares now?!?!

I thought these guys were going under for the silver trade?!?!

Either the stress tests by the Fed was absolutely fucking useless... or JPM is not as exposed to silver as we suspect.

topshelfstuff's picture

goes to show the power of the Press

everyone seems to have Overlooked that the very same JPM has been LONG on record breaking Copper, somewhere in the 80-90% of outstanding contracts, of course this doesn't make the Headlines

and this more than Hedging their Silver Short

bingaling's picture

There is a rumor that Turd received that the short squeeze is not JP but another bank.

pendragon's picture

surely this is contrary to their call for eur 1.50...unless bunds do even worse? maybe USTs crapping out will be the only thing to save the dollar.

Josh Randall's picture

I may be getting played like others - but my hunch was that Pimpco wasnt in the "front running pow-wow/conference circle this time, so they cashed out and waited to see what the play would be like the rest of us -- now I bet they make their move

dcb's picture

you know that all the fu..kes have do do a repo 105 at the end of the last 2 weeks in the quarter. used to be a great time to market short until Qe was put in place so you couldn't front run the primary dealers. while the market has been doing what it does, this movement at the end of the quarter for treasuries has been good.


Also, if you chart tbt it sure looks like a head and shoulders pattern,

Pool Shark's picture


If Goldman sez short the 5-year, it's time to load up on TLT...

Bill Gross getting ready to back the truck up?


Temporalist's picture

Fight club bitchez!

SwingForce's picture

Difference is PIMCO is long Cash USD.

Spitzer's picture

how do you figure that ?

I cant stand watching bill gross because he cant seem to get that rag out of his throat.

Innocent Bystander's picture

This and gold 1480 call ...hmm ...forced liquidations?

dcb's picture

I also think we should touch 1237 on s and P

Seasmoke's picture

someone BIG is going down for the count.....hope its Blankefein


TruthInSunshine's picture

NerObama = a water boy for the new owners of the U.S. - Wall Street (that which comprised 13% of U.S. GDP in America's Great Days of the late 60s, but which comprises 41% now, and which produces 1/10th the jobs that manufacturing does).

We have a government owned by parasites that only excel in shifting money around, and in 'engineering' 'financial products,' many of which are ticking time bombs of wealth destruction, such as derivatives.

Wall Street is sucking the blood out of Americans.

These literal diseased parasites at Goldman Sachs and JP Morgan (and their friends in London, who ruined Britain, by the way) are stripping the copper wire out of the abandoned, foreclosed house that has become of this country (this after they torched the house after taking out 100 casualty loss insurance contracts on it); we know your role of complicity with the Giant Vampire Squid, Bernanke, Dudley, Frost, Sack, et al.

We will not forget.

eddiebe's picture

So what? Eat shit and die! Very sincerely:  

Squid, Bernanke, Dudley, Frost, Sack, et al.

economists_do_it_with_models's picture

Come on 3:30PM SPY rally so I can go short into the Japanese meltdown over the weekend.

Gen X Gen Y Hybrid's picture

COT report comes out at 3:30pm and we get an immediate "bump" in silver (small one).

Looks like shorts covering for the most part.

buzzsaw99's picture

So kind of the squid to share.

I am a Man I am Forty's picture

not sure where pimco and gs are differing in their opinions

Rainman's picture

Squid did a business survey indicating expected 4%+ GDP growth. 

John McCloy's picture

Shanking each other in the showers. A year from now what remains will have to eat the corpse of the others in order to survive themselves. That ladies and gents is the result of central planning capitalism.

Bolweevil's picture

Yesterday it was, "...whomping up the crazy"; today, "shanking in the showers." I love this place!

AchtungAffen's picture

Didn't PIMCO get out of all their UST positions a few weeks ago?

waterdog's picture

Shouldn't be too long from now that we begin to stop eating our own dead and, start devouring each other while on the hoof.

One day a knife in the back will be appreciated; at least you will still have your home.





John Law Lives's picture

CBO: President Obama understates future budget deficits by $2.3 Trillion

Gee, what a shocker.  Then again, The Ben Bernank can just monetize all the debt... and starve half the world to death in the process.

DavidC's picture

Couldn't happen to a more deserving company. I've been watching some CSpan of Brooksley Born's questioning of David Viniar in 2010 today - the CFO saying a) Goldman's has no derivatives business (see him squirming to define that) and b) that Goldman had no idea of its risk associated with derivatives.

(Brooksley comes in around 1:12:00)


TruthInSunshine's picture

Gasparino over at Faux Business (as unbearable as CNBsC) claims Lord Blankfein is leaving Goldman Squid.

working class dog's picture

Tell me who is making the money by being on the correct side of the CDS markets, GS, JPM,MS etc all donating money to Japan. I say they should donate all the profits they are making in the unregulated OTC CDS derivitives markets, you dont think these Aholes are donating their money do you, they are donating Hank Paulsons bail out money, and Tarp and POMO and and and.

tiger7905's picture

Latest comments by Don Coxe, believes bullion producers will out do bullion in next leg of the market.

bogey4's picture

 "As a result Francesco Garzarelli has just released a trade update, advising clients to go short the 5 Year at 1.936% with a 2.30% target and a stop at 1.80%. As usual, since that would mean Goldman is now accumulating 5 Year inventory, it appears we will soon have a rather dramatic duel between the two biggest Wall Street titans: PIMCO and Goldman, at least as pertains to their outlook on rates."

I'm sorry, am I missing something?  Why would GS be accumulating 5's if they think they're going down?   And what's the "duel" if they both think the same thing?  Are you saying that GS is giving us a head fake and they really like the market?

This is so confusing!

mark mchugh's picture

GS has a track record of "advising" people to take the opposite side of thrir own trades.  When you short something, you have to buy it to close your position.  By advising others to short, they are cultivating the buyers they will need to exit their position.

tom's picture

Funny that in a piece recommending a short on Treasuries Goldman doesn't even mention the possibility of QE ending in June.



mr66's picture

Bill Gross is King Kong up in these parts. He will turn Golmand

Sacks into sausage!


Opinionated Bloviator's picture

 Will the United States be in a position to repay these bonds 5 years from now? Based on the economic and social data from 2008 onwards and the coming tidal wave of boomer retirements...

tradewithdave's picture

Here's something to consider.  El-Erian said this back in the July of 2010 before all the global revolutionary North African uproar.  “The global financial crisis has also undermined the standing and credibility of the Anglo-Saxon economic model that emphasizes liberalization, deregulation, interconnectivity, and unfettered markets.”  Indeed President Obama's powers are limited, but they are very significant.  If you were Lloyd Blankfein and you were thinking that President Obama was going to side with you or with Dr. Mohamed A. El-Erian which way would you bet?

Let's look at it another way.  Let's say you were the dictatorial leader of Egypt and you were wondering whether or not President Obama was going to side with you as the West's choice for controlling the region or whether President Obama would side with the Muslim Brotherhood as the new and powerful political force in the region. 

How about this example?  Let's say you're Israel's Prime Minister Benjamin Netanyahu.  You're trying to decide if President Obama is going to side with the sons of Abraham or the sons of Ishmael.  If you could use J. P. Morgan and PIMCO together to take down Goldman Sachs and you were President Obama, would you do it?  Could you do it? 

Continuing along the same historical lines of religious influence, if you were Islam would you be willing to back a historically Christian banking enterprise (JPM) if it empowered over a historically Jewish banking enterprise (GS)?  If you were J. P. Morgan would president Obama be savvy enough to fool you into a break from the Judeo-Christian heritage if enough money were involved? 

What does the business of religion have to do with all this?  Don't ask me, ask PIMCO's El-erian.  He's the one who brought it up.  If you don't know what Anglo-Saxon means here's a definition.  A native or inhabitant of England prior to the Norman Conquest and primarily British in origin and a native speaker of the English language whose culture is strongly influenced by English culture such as that of the white Anglo-Saxon protestant or "WASP." 

To reinterpret El-Erian's remarks, I think it's fair to say that it could read like this.  The global financial crisis nearly killed the wasp.  If that's true, then maybe, just maybe the White House believes the WASP will be convinced to compromise it's two thousand year history of alignment with Judeo-Christian ideals in exchange for a Goldman Sachs take-down.  Not sure which side I would be on in that cage fight but looks to me like Tyler Durden may have finally found his fight club. 

If this plays out like it would appear, then "We're building a new religion and Obama's calling you dude." 


TexDenim's picture

Backing GS's bets is usually a safe trade, in spite of the brainpower at Pimco. I would not want to be on the other side of Goldman.