Goldman Sachs Ends Recommendation to Short Five-Year U.S. Treasury Notes
Goldman Sachs Group Inc. dropped its recommendation for investors to bet against U.S. five-year notes, citing Federal Reserve comments and the pace of inflation.
Goldman, one of the 20 primary dealers authorized to trade directly with the Fed, initiated the trade on March 18 at a yield of 1.94 percent and a target of 2.30 percent, Francesco Garzarelli, Goldman’s London-based chief interest-rate strategist, wrote today a report to clients.
“We are exiting the trade essentially flat,” the report said. “The trade performed well through mid-April until a combination of dovish Fed comments, slightly softer-than- expected inflation prints, and ongoing concerns that high fuel prices will hit consumer spending triggered a wave of short covering.”
Fed Chairman Ben S. Bernanke signaled April 27 the central bank will maintain its record monetary stimulus after ending large-scale bond purchases in June. The Fed said its preferred gauge of inflation, the personal consumption expenditures price index minus food and energy, will rise by 1.3 percent to 1.6 percent this year, up from its earlier estimate of 1.0 percent to 1.3 percent and within its preferred range of 2 percent or a bit lower. Oil rose to a 31-month high yesterday.
The five-year yield was little changed today at 1.97 percent as of 1:16 p.m. in Singapore, declining from 2.35 percent on April 8, according to data compiled by Bloomberg. The price of the 2 percent security maturing in April 2016 was 100 1/8.
Goldman Sachs will look for opportunities to bet against, or short, the note again, the report said. So-called short covering is when investors reverse wagers on an asset declining.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net.
To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net.
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