Goldman Sachs sees US yields settling in higher range near-term

Investing.com -- Goldman Sachs said rates markets are pricing a reduction in volatility and tail risks as risk assets continue to price relief and commodity markets anticipate a resumption of flows through the Strait of Hormuz.

The bank noted this comes against less central bank urgency but a higher inflation baseline. While Goldman's medium-term inflation and labor market outlook suggests US yields could move lower over time, the bank expects yields to settle in a higher than pre-conflict range in the near-term.

Goldman said a mix of stable policy and curtailed growth risks could be friendly for carry, favoring swap spread longs or volatility selling, though the speed of compression in the latter argues for overlay hedges.

In Europe, volatility reduction continues as the path for the European Central Bank narrows. Goldman said selling payer skew and long sovereign credit offer reasonable risk reward for further relief.

In the UK, Goldman recommended keeping longs at short maturities given potential risks to Gilt term premium.

The bank noted long-end Japanese yields continue to be the pressure relief valve as Bank of Japan dovishness has combined with higher inflation pricing to bear-steepen the curve.