Global Rates Trader A Steeper Price of Relief

Economics Research 14 August 2026 | 7:20PM BST

Benign inflation news has reinforced last week’s cooler hiring to support a reduction George Cole | in US hike risk. Sustained accumulation of milder data should see the US front-end Goldman Sachs International consolidate around an on-hold baseline and undo some of the recent build in term William Marshall premium that has coincided with cautious duration demand. We still expect lower | yields to be largely driven by policy rate expectations, however, supporting a Goldman Sachs & Co. LLC steepening tilt in the US—our preference remains for US steepening exposure versus Simon Freycenet | flatteners in Europe. Energy risks remain the focal point for both European and UK Goldman Sachs Bank Europe SE - Paris rates, but we think the playbooks for the two curves are distinct. There are multiple Branch routes to a flatter EUR curve in our view, whereas energy relief can combine with a Isabella Rosenberg more dovish BoE to support lower UK front-end yields while a gradual build in focus | on the Autumn budget keeps term premium stickier and the GBP curve biased Goldman Sachs & Co. LLC

steeper. The rise in near-term hike risk in Japan sets a higher hurdle for the BoJ to Friedrich Schaper | clear, leaving belly and long-end forwards vulnerable to renewed volatility should Goldman Sachs & Co. LLC policy fail to out-hawk the market. We favor receiving 10y AUD with the RBA likely on Loic Mathys hold through year-end and both the macro outlook and valuations consistent with | lower yields over time. Goldman Sachs International

United States and Canada n Trimming the tail. No single observation has sounded the all clear on Fed hike risk, but the accumulated news over the last two weeks has compressed the right tail around the front-end of the US curve. Our economists expect July core PCE to come in at 20bp, with a similar expectation for August’s print—a string that would leave three-month annualized core inflation at about 2.1% before any revisions due to methodological changes. Under that baseline there is room for yields to decline on the back of further erosion of hike risk and scope for some reduction in risk premia further out as policy uncertainty diminishes. Resumed duration demand from real money can also be a tailwind, but we continue to expect long-end yields to prove comparatively sticky given more durable factors related to the investment, fiscal, and global yield backdrop. We maintain our preference for steepeners cross market versus Europe and recommend buying a 6m1y A/A-40/A-80 receiver fly (entry: 9bp running; target: 20bp; stop: 4bp) as a limited downside expression that should benefit from a continued compression in hike risk (realizing the center strike would be consistent with peak potential payout at expiry and is about consistent with the market pricing an on-hold

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policy path from current levels). n Signs of dampened duration risk appetite. The rise in long-end yields though July and August came amidst evidence of diminished duration risk appetite, with shifts visible across real money positioning and other market indicators (Exhibit 1). Asset manager net longs in Treasury futures have declined over the past few months, a shift also reflected in our Fund Positioning Indicator (see the back pages of this report for our suite of positioning measures), which suggests that real money is now underweight duration relative to the Agg. Outside of more direct positioning measures, risk reversals in TY futures have shown continued demand to hedge against the risk of higher yields, and the widening in the CME-LCH swaps basis through July likely indicates a skew towards paying through the selloff. While the latter may be related to convexity hedging due to the yield move, the relative tilt in activity still aligns with limited appetite to accumulate long duration exposure as yields have…