GS Biswas GS Credit MarketStrats Ingredients (mostly technical) for a near term rally are shaping up

GS Biswas - GS Credit MarketStrats Ingredients (mostly technical) for a near term rally are shaping up 20 Sep 2026 Avishek Biswas · Goldman Sachs · Credit MarketStrats 20 Sep 2026

Tomorrow : iTraxx indices will be rolling into the new (S46) series. Details of NAV/name changes and non-dealer positioning available here. We look forward towards facilitating your roll related flows (kindly reach out to Gamal/Ruben/Matt tomorrow).

Coming to macro and markets – ingredients (mostly technical) for a near-term rally are shaping up. Yes, there is the ongoing question of the Middle East conflict and the follow through into energy supply and prices. Yes, there are worries around rates price action and scope for central bank rate hikes. But a lot of that is already priced in and (more importantly) getting reflected in sentiment/positioning.

Rates’ valuation : USD and EUR rates have already sold-off >80bps year-to-date (Graphic 2); both the rates are at (or close to) the widest levels of the past 15y history (Graphic 3); and market is already pricing 3 or more rate hikes by the FED and ECB over the next 12 months. Rates positioning : Metrics of positioning suggests significant short base in rates (particularly from the systematic community – Graphic 4). As per our Futures Sales Strats – “Within global rates, the systematic trend following community is decisively short… Positioning currently sits at short $171mm DV01 globally with JGBs, Bobl, and Bunds as the relatively largest short positions within our framework. This represents the shortest CTAs have been since the first of April this year, prior to that you would need to look back to February 2022 to find positioning this short”. More details here. Which is creating the risk of a short squeeze in rates. Equities positioning : Measures of equity investor positioning are suggesting investor community running pretty light in equities. For instance, our Sentiment Indicator (SI) currently reads at -0.92 (Graphic 5); readings of -1.0 or lower have signalled very light positioning and have historically been a statistically significant signal for subsequent S&P 500 performance. Equities bulls vs bears : AAIIBULL minus AAIIBEAR indicator is at very negative levels (= suggesting investors are already bearish – increasing the risks of short squeeze into positive catalysts) – Graphic 6.

I am mindful that rates (and hence funding costs for govt/corporates/consumers) at these levels are a burden on economy and a medium-long term headwind for risk assets (particularly small cap equities/HY credit/lev loans/private credit) but the above alluded to investor positioning is creating a near-term skew towards a relief rally (whether or not it is fundamentally justified). And while headline level credit spreads are still not “wide”, there is scope for spreads to squeeze into the next 1m-2m horizon if we see a relief rally in equities and/or rates (which is pretty plausible in my view). From here I would be recommending credit investors (especially those running underweight) to consider some tactical upside trades/structures (below are my preferred expressions).

Short-dated iTraxx receivers and bull riskies : Given the steep implied vol skew, investors can buy iTraxx receivers at historically low premiums and source levered upside exposure in credit. For zero premium

construct, one can buy a 1-month expiry iTraxx Main receiver (with a strike 2.5bps away from spot) fully funded by selling a 1-month expiry iTraxx Main payer (with a strike 10.5bps away from spot). Reach out for specific implementations. Longer-duration EUR IG Senior Fins cash : Long duration to increase the MtM potential (in case spreads squeeze) and Senior Fins cash given the past couple of months’ of issuance-driven spread widening in this pocket. Example : investors can go long our EUR IG Snr Fins 5y+ (GSLCIF5Y) bond basket where one gets around 96bps of spread to benchmark (Graphic 7) and 4.36% all-in yields.

Outperformance of hyperscalers : This space has been lately outperforming within DM credit (particularly in USD) – Graphic 1. Since the beginning of August, I have liked this space as a pocket to be tactically long risk – so I am…