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Goldman Sachs Says US Rates Market Underprices Recession Risk

  • Firm recommends 2023-2024 eurodollar curve flattener
  • Inflation risk is complicating factor for curve bets

Interest-rate strategists at Goldman Sachs Group Inc. said US markets are underpricing the risk of a recession in 2024 and joined the recent surge in bets to profit from a dovish shift in Federal Reserve policy.

While market-implied expectations for the Fed’s policy rate have declined over the past few weeks to levels that for early 2023 have “limited downside, fed funds pricing in 2024 is likely underpricing the risk of recession,” strategists led by Praveen Korapaty said in a June 24 note. The risk that inflation remains high is complicating how recession fears affect the slope of the yield curve, they said.