Goldman Sachs Strongly Suggests Clients Sell Them Their Treasury Bonds

Tyler Durden's picture

The last time Goldman Sachs urged clients to "sell", it was gold - and in the next quarter, they were the largest acquirer of the precious metal via ETFs. So when the muppet-murdering bank suggests this morning that, while "we have been caught in choppy action" there is a slow awakening of Treasury bears and recommends shifting from a neutral to short-duration position in bonds... one can't help but wonder just what the bank will do with all the bonds clients sell to them...

Via Goldman Sachs,

On balance, we expect stronger economic data, evidence that core inflation is stabilizing (albeit at low levels), and neutral policies by the main central banks. We are entering this period with a positive stance on stocks, an underperformance of intermediate maturity bonds in core markets, an increase in inflation break-evens, and a constructive view on credit and sovereign spreads.

A Slow Awakening for the Bond Bears

Our call to be ‘bearish’ on the direction of rates during the second quarter (see Springtime, Bond Bears Awaken, 31 March), from neutral previously, have been caught in a choppy price action.

Since the end of March, total returns on US, German and UK 5-to-7-year bonds have been marginally positive. This has reflected a combination of factors:

  • Short-dates US$ rates have been on a roller-coaster ride. Weather distortions have made it difficult to judge the underlying pace of growth. Meanwhile, investors’ interpretation of the Fed’s ‘reaction function’ have shifted between Chairwoman Yellen’s press conference on 19 March and the release of the FOMC minutes on 09 April.
  • Expectations of further ECB easing have been kept alive by a string of low inflation prints. The short-end of the EONIA curve has been volatile and, on average, re-priced higher reflecting a progressive decline in excess liquidity and, arguably, the impact of more stringent regulatory pressures. But the intermediate to long end yields have fallen, de-coupling from their US counterparts.
  • The BoJ’s ongoing bond purchase program is contributing to keep long-dated nominal JPY yields very stable, amidst rising inflation expectations. Ten-year JGBs now trade at the same level of last November (around 60bp), with 10-yr breakeven inflation 40bp higher.
  • International tensions surrounding developments in the Ukraine have increased capital inflows into the Euro area (with the EUR playing the role of the ‘new Yen’) and led to a further decline in rates in core countries.

But the Warmer Weather Should Boost Their Strength

We acknowledge the difficulty of holding short rate positions in the current environment of low policy yields and the several cross-currents listed above. Nonetheless, we strategically stick to the view that the market is too complacent in discounting negative real cash yields out to 2017-18 in the major economies, and low rate volatility over this entire time horizon. The different macro models we run converge in saying that the very front-end of the US, and the long-ends of Germany and Japan have departed from their fundamental underpinnings, and are vulnerable to an increase in the term premium. We are currently recommending short positions in 10-yr German Bunds and long positions in 10-year Japanese inflation. As we commented on Friday, we would see peripheral EMU spreads remaining resilient to an upward adjustment in core rates, if predicated on an improvement in the macro outlook.

In support of our thesis, we note the following:

  • Stronger macro data ahead: While the debate on the amount of residual slack in the labor market in the US remains a heated one, leading indicators of economic activity point to a rebound from the soft patch in the first quarter. Meanwhile, core inflation appears to be forming a bottom, reflecting price pressures in services and rents. With the Fed no longer locked into macro threshold guidance, there should be more room for policy rate forwards to reflect the evolution of incoming macro data. Admittedly, the debate on whether the Fed will start lifting overnight rates through the Reverse Repo Facility already in mid-2015 (as the FOMC ‘dots’ suggest), or wait until a later date and then remove the accommodation more rapidly (which has been a long standing view of our US Economics team) remains open. In either case, but especially under the second scenario, yields at the 3-to-5-year maturity should continue to increase (and the yield curve become more ‘hump-shaped’) as and when the pace of the expansion accelerates.
  • Accommodative overall financial conditions: Recent gyrations in stock markets do not contain enough macro information to challenge this assessment. Rather, they appear to relate mostly to a sequence of risk unwinds in areas where valuations had rapidly changed (examples, tech stocks, UK domestic plays, Euro area peripherals). Supporting this idea, for sectors that have gone down in price, others that have outperformed (those exposed to emerging markets, and the energy complex provide two examples) without a clear mapping to macro risk factors (as Aleks Timcenko wrote in a Daily dated 24 April).
  • Less segmentation in the Euro area: There is evidence that the fragmentation across the Euro area is slowly declining. Falling TARGET 2 imbalances reflect this, as peripheral banks continue deleveraging and repaying the LTROs, and investors outside the Euro area purchase peripheral assets (see Dirk Schumacher’s note on the topic). On our measures, peripheral spreads now trade tighter than what can be justified by macro fundamentals and credit ratings alone. Finally, the ECB appears inclined to compensate for the contraction in bank balance sheets through direct support of the securitization market (see our note from February on the topic). Steps towards credit easing would be supportive for growth, and lead to an increase in inflation expectations from presently low levels.

So sell Goldman Sachs your bonds! now!

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Arius's picture

too much thinking for a muppet ... just SELL ... get it over with.


One has to wonder what is going on with that barbaric relic ... everyone from armstrong and the rest of the crew is calling for another bottom, yet, just doesnt seem to be going down ... one has to wonder what are they expecting to happen ... will see i guess

Manthong's picture

"But the Warmer Weather Should Boost Their Strength"

Now I Understand.. bonds are thermodynamic.

VD's picture

& muppetz dont spontaniously combust....(they get blown up...)

SamAdams's picture

Muppet Translator - Stocks down, US paper up

Stoploss's picture

Quitters never win. Right Mo?

Winners never quit...

The mere existence of a FED gurantees there can be no bond bear.  Ever..

We're going to learn that the hard way. Gotta love it!

icanhasbailout's picture

that's why Hell keeps freezing over

Itchy and Scratchy's picture

Mr. Valentine has set the price!

MFL8240's picture

The American sewer system backs right up into this shit hole!  

Soul Glow's picture

I thought that was the Fed's gold vault that backed right up to their shit hole?

Anasteus's picture

I'd be curious whether the same strong advice has headed also for China. Goldman could make a great deal by exchanging the pile of 'useless' gold for the treasuries.

Goldman should indeed take the chance.

ParkAveFlasher's picture

At this point, I don't even think these guys want money...only power!

Grande Tetons's picture is the money. They can use that to buy the power they do not currently enjoy. 

Soul Glow's picture

Can't rationalize the irrational.  It is quite possible they do it for the hookers and blow.  Even possible they don't know why they do it and they do it because they can.

Grande Tetons's picture

The dog licking his balls theory. Works for me. 

ParkAveFlasher's picture

Is the will to power inherently masturbatory then?  I think it is. 

Grande Tetons's picture

We should co author some bullshit thesis and toss it on Amazon and retire.

Licking your balls to the top. 

Soul Glow's picture

We'll have Robert Mishkin write the intro and sell it to college students as "Economic Theory".

Battlecom1's picture

Hookers and blow can infact be expensive...but most likely a tax write off somewhere, somehow.

Dr. Engali's picture

How in the fuck can they say they expect stronger economic activity when they just downgraded economic growth to 1.1% from 3% last week? Stupid muppets deserve what they get when they can't put two and two together.

MFL8240's picture

They can say whatever they want because this goverment will never prosecute them for misleading the public, they are bed partners!

Soul Glow's picture

They are the government.

disabledvet's picture

These are the same folks that cost the taxpayer 185 billion dolores...and got paid dollar for dollar I might add.

Hey, assholes...where is our 20% economic growth you promised with that?

"It all comes in the form of more real estate"?

That land is an income producing asset you phuckers. Now you're sticking a liability on there (some phi king Stripper Mall) and trying to call that growth positive?

We're still down 30 MILLION jobs.

On the good side "we're still better off than Europe." How the invasion going anyways?

fonzannoon's picture

Doc I think for whatever the reason it looks like the fed has decided enough is enough with QE and is actually trying to pawn this shit sandwich off on us as a recovery.  They seem to be in a pretty big fuckin hurry to stick their "mission accomplished" sign in the dirt and move on. GS is playing along hoping to grab a few more bawnds knowing full well what is coming

Dr. Engali's picture

That seem to be fair assessment. The momos can not get any traction before rolling over again. The free money stream is coming to an end.

disabledvet's picture

They can't even prosecute a war right.

It's called a ten MILLION man Army you morons.

And that's just for starters. "We'll throw the guns in for free." Ammo does cost extra though.

CrashisOptimistic's picture

Their growth estimate cut was for Q1.  Naturally, as always, they are looking for stronger macro in Q's to come -- and of course this is supposed to happen with $100+ oil.

Dr. Engali's picture

And in quarters to come they will be reducing their inflated numbers again. We will not see above a 1.5% (and that's with the new intangible calculation) growth in GDC (gross domestic consumption since we produce nothing but excrement and financial weapons of mass destruction). 

CrashisOptimistic's picture

Don't go overboard.  The US is the #1 exporter of wheat and soybeans (Brazil closing in on soybeans).

Major corn exporter but the total is down from the 1970s.  China refuses any more US corn (Gen Mod concerns).

As long as there is a Midwest, the US will always produce something.

But in general, yeah, there's no engine on the horizon that is going to goose growth later this year.

Soul Glow's picture

Buy the fucking dip, Muppets!

Jack Burton's picture

Are their clients who listen to Goldman? I mean, how many times do you get raped before you learn? All these pension fund managers and other financial mangers for business and private funds, how does it work to go to Goldman for advice and investment vehicles? How many bodies liter the roads and still they come.

LawsofPhysics's picture

Just the sign I was looking for.  Time to buy some treasury bonds...

Liabilites still need to be funded.  Goldman knows this and so do I, but what I don't know about is the timing.

Another few rounds of "taper", gotta keep rates low...

Dubaibanker's picture

<Salivation starts>

UK launches criminal probe against fraud bankers. 

UK prosecutor charges US-based ex-Barclays staff in Libor probe

LONDON Mon Apr 28, 2014 10:25pm IST

Will we see first bankers in the UK go to jail?

CrashisOptimistic's picture

The investigation is of someone US based.  This is just London trying to grab more banking business from NYC.

Nothing fundamental happening.

CHX's picture

QE V is in the air...

Soul Glow's picture

The Fed is up shit creek, eh?

fonzannoon's picture

no the fed will be fine. It's pretty much everyone else.

CHX's picture

$hits toaster. CHeers

Soul Glow's picture

The Dow is even!  Hooray for the President's Working Group on Finacial Markets, POMO, Tuesdays, and Blankfien doing G-d's work!

fonzannoon's picture

These are just pumps to allow whoever is exiting to exit. They keep getting followed by bigger dumps. This market stinks to shit. I may miss the momo recovery of the century but I am holing up in mega cap div payers and bawnds and am calling it a year. 

Dr. Engali's picture

I've been there for a while, and it's been a good start on the year. Now I'm raising some cash. For myself, Im buying the fear and just trading the ranges.

fonzannoon's picture

I have been there to but I keep sticking my toe in the water only to get it bit off. I'm gone. F this guy Yellen.

Soul Glow's picture

I've been telling both of you I was long equity your whole tenure at Fight Club.  I went short for the first time a couple weeks ago.  

fonzannoon's picture

The last conversation we had you called me a doodie head for saying gold would drop from $1,385 and that it was about to go parabolic. But since you mentioned you are short. What are you shorting? 

CHX's picture

They fight their last battle... something  epic will be pulled off in front of our all eyes. Watch history unfold on level not seen in many decades. 

SmilinJoeFizzion's picture

Paper gold down 6% - what a joke

disabledvet's picture

Hopefully Goldman is levered 1000 percent and triple long that too.

Matt_Master's picture

Even the devil can learn some tricks from these scumbags

disabledvet's picture

These aren't momo monkey's...these are pomo monkey's.

The defaults are well underway now.

I have sold the General Electric and I would recommend others looking for principle appreciation do the same thing. Lot of room to move that dividend higher of course....but that clown CEO couldn't run a lemonade stand...unless of course the lemonade stand was for sale.

"No it does not come with the property where it is situated. Only the stand, a large water cooler and some lemons. And that will be ten million dollars." It does come with a permit for "lemonading."

AurorusBorealus's picture

Rehypothecation bitchez...