Global Rates Trader Macro Problems, Micro Solutions

Economics Research 21 August 2026 | 5:50PM BST

Macro Problems, Micro Solutions

The US Treasury’s decision to increase long-end buybacks does not address what we George Cole | see as the main sources of recent long-end volatility. Fundamental factors and macro Goldman Sachs International risks—rather than a supply-demand imbalance—are the primary drivers of the William Marshall selloff, while global spillovers are keeping a higher floor under long-end yields across | markets. As long as the underlying drivers including cyclical resilience, inflation risk, Goldman Sachs & Co. LLC and policy uncertainty remain unresolved, attempting to suppress long-end rates Simon Freycenet | volatility via supply adjustments will simply push the pressure elsewhere—i.e. Goldman Sachs Bank Europe SE - Paris cheaper belly rates and/or a weaker currency. The experience in the Gilt and JGB Branch markets in recent years underscores the limited capacity of long-end supply Isabella Rosenberg reductions to compress risk premia without more favorable macro dynamics | materializing. Clarity around the Fed’s reaction function could bring relief, but in the Goldman Sachs & Co. LLC

near-term we see multiple routes to US belly underperformance with our preference Friedrich Schaper | still for cross market steepening versus Europe. While fiscal risks are not the cause of Goldman Sachs & Co. LLC the recent rise in Gilt term premium, we think the anticipation of the Autumn budget Loic Mathys should keep the recent reset sticky. | Goldman Sachs International

United States and Canada n Macro pressures still unresolved. Treasury’s announcement that it will double the size of 10-to-30y buybacks (from $2 to $4bn per operation, with 7 operations through the rest of the quarter) suggested a level of discomfort with the level of long-end yields that brought sharp but short-lived relief to the recent selloff. While the removal of duration supply implies a shift in the long-end supply-demand balance, we think the drivers of higher long-end yields have been macro-related rather than a function of UST supply indigestion. Cyclical resilience, the year-to-date reassessment in the Fed policy path, AI capex and related longer-term growth optimism, ongoing fiscal pressures, and global spillovers have contributed to a higher fair value for long-end yields. Meanwhile, policy uncertainty, ongoing energy risks, and the broader issuance trajectory have likely contributed to higher term premium and led to weak appetite to add duration risk through the selloff (Exhibit 1). Despite the recent moves, however, long end USTs are not materially misaligned with macro fundamentals. In broad strokes, reducing the amount of long-end supply does not address the main factors that have contributed to recent long-end cheapening and is thus unlikely to sustainably dampen risk premia unless reinforced by a shift elsewhere. The

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best analogue, in our view, is FX intervention, which typically puts a short-term floor/ceiling on levels and can temporarily suppress volatility, but it forces pressure to be released elsewhere (in the current instance, either towards the belly of the curve and/or through the currency) and cannot durably curb market moves when macro forces are pushing in the other direction. In contrast to the efficacy of the Fed’s Twist program (which has similarities from a duration risk removal perspective), Treasury buybacks lack the policy rate guidance channel that reinforced the term premium reduction. We think the buybacks themselves are unlikely to meaningfully reset rate levels even if scaled up, and most of the routes to rate relief that existed previously—such as benign inflation news, diminished cyclical optimism, or reduced monetary policy uncertainty—are the same today. Underweight real money positioning can become a tailwind, but we think that renewed appetite for duration is…