Global Rates Trader Establishing a Foothold

Economics Research 9 October 2026 | 4:40PM EDT

It has been a challenging stretch for valuation-based arguments for stable or lower William Marshall | G10 yields, but longer-term forwards are elevated versus fair for most major Goldman Sachs & Co. LLC markets, and a range of factors are reinforcing the case that duration is attractive at Simon Freycenet these levels. Recent credit spread pressures have revealed clearer cracks in markets’ | ability to digest a high vol selloff without more acute financial conditions tightening, Goldman Sachs Bank Europe SE - Paris Branch most notably in Europe. In the US, positioning signals now point to an investor-base better hedged against a further yield rise. And while recent volatility has heightened Isabella Rosenberg | focus on potential amplifying factors from market stress and hedging flows, Goldman Sachs & Co. LLC measures of market function look generally benign and convexity-related risks on Friedrich Schaper further selloffs appear to have diminished. We think that heightened macro | uncertainty and caution amid market volatility have been the key ingredients for the Goldman Sachs & Co. LLC

more acute bout of pressure on long-end rates. While certain drivers—most notably Loic Mathys | energy risks—have not subsided, we see tactical value to fading the latest phase of Goldman Sachs International 10y underperformance—we favor receiving 10s on the 5s10s30s SOFR fly. OAT widening has outstripped fundamental drivers; with spread compression dependent on support from lower core rates and rates volatility, we think lingering spread risks should provide a brake to Bund selloffs, where we see more routes to a rally. For Gilts ahead of the late-October UK budget, day-to-day volatility continues to hinge on the energy backdrop, but limiting near-term fiscal slippage is a necessary ingredient to preventing a build in risk premium.

United States and Canada n Relief routes. After a volatile yield rise that brought widening in both US corporate and (to a greater degree) EU sovereign spreads into focus, US Treasuries took a step towards consolidation. Technical risks are in our view diminished, with mortgage convexity close to zero and asset managers underweight their benchmark having reduced duration exposure versus earlier this year (more below). Spillovers from abroad, meanwhile, have gone from a source of bearish pressure on US rates to a bullish impulse recently (Exhibit 1). And while energy prices—particularly refined products and more distant crude forwards—have maintained a heavy influence over day-to-day bond performance (albeit more so on energy rallies than selloffs), Thursday’s rate rally despite higher energy prices pointed in part to yields’ sensitivity to news that shakes investor confidence in the AI trade. As we have argued in recent weeks, the valuation and positioning picture argue for asymmetry to lower yields, while the reduction in convexity-related risks and evidence of constraints on higher

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Goldman Sachs Global Rates Trader

Bund yields (below) add to the favorable tilt for duration. Given the ongoing role of oil in day-to-day rates volatility and the upcoming CPI release—where our economists expect boosts from higher energy and other commodity costs and seasonal distortions—we think the tactical value lies in fading the latest phase of 10y underperformance where factors discussed below have likely exacerbated pressure.

Exhibit 1: Since mid-September, impulses from abroad Exhibit 2: MBS index-level convexity now is close to zero onto USTs have been bullish after the selloff G4 Spillovers to 10y UST yields, Rigobon decomposition Convexity MBS Index Convexity MBS Index Duration (rhs) Duration bp US bp 0.25 6.2 40 UK 40 DE 6.0 35 JP 35 0.00 30 Cumulative change in 10y UST

- -Jul to 18-Sep 18-Sep to Present -1.25 4.4 Jan-24 Jul-24 Jan-25 Jul-25 Jan-26 Jul-26

Source: Goldman Sachs Global Investment Research, Goldman Sachs FICC and Source: Goldman Sachs Global Investment Research, Bloomberg…