GS Fixed Income Monthly May 2011
Transcript of GS Fixed Income Monthly May 2011
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8/6/2019 GS Fixed Income Monthly May 2011
1/20Important disclosures appear at the back of this document
Fixed Income MonthlyMay, 2011
Goldman Sachs Global Economics,
Commodities and Strategy Research
at https://360.gs.com
The Greek Conundrum
Government bond yields have ralliedfurther over the past month, mirroring the
ongoing downgrade to consensus (and our
own) growth forecasts across the major
economic regions.
Our models suggest that higher inflation
expectations represent a significant offsetto the lower outlook for real activity in
determining the current fair value of
bond yields. On valuation grounds, wethink 2.8% should represent an important
resistance level for the UST 10-yr.
We expect a decision on the disbursement
of further financial aid to Greece to bemade in the coming weeks. This month,
we discuss the different options
policymakers could be exploring. Ourcentral case is that agreement will be
reached on the extension of the program,
involving a top-up of public funds and, in
2012, a re-profiling of the maturitystructure of official bonds and those held
by the private sector.
More broadly, we continue to believe thatthe larger high-yielding sovereigns (Italy,
Spain, Belgium) offer value relative to
their AAA-rated EMU peers. In the yearto date, these countries have significantly
outperformed the core; notably, Italy has
outperformed on a volatility-adjusted
basis.
Francesco U. [email protected]
+44 (0)20 7774 5078
Constantin Burgi
+44 (0)20 7051 4009
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Fed FundsTarget
2-yr 5-yr 10-yr 30-yr
% Bonds Priced Consistently withNegative Fed Funds
Taylor-type Rule Yield Curve
-/+ 1 std.dev.
Current Yield Curve
Source: Bloomber , GS Global ECS Research
0
10
20
30
40
50
60
70
80
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100
End 2011 2-yr 5-yr 10-yr
% Cumulative Unconditional Probability ofGreek Default Implied by CDS*
*Assuming 45c recoverySource: GS Gl obal ECS Research
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Bond Rally Capped
Slower Growth Priced InSince the April issue of ourFixed Income Monthly, fixed-income markets have rallied further, with US Treasuryyields now setting fresh lows for the year. Year-to-datetotal returns in local currency on 7-10-yr US T-notes arenow around 3.9%, comfortably outperforming theEuropean markets and Japan. Australian bondsour toppick in previous issues of this publicationhave posted
the highest period returns among the majors (4.0% ytd).
Over the past weeks, bond yields have mirrored theongoing downgrade to consensus growth expectations andthe relative decline in cyclical stocks in evidence sinceMarch. Over this period, the relationship between ourWavefrontUS Growth equity basket (which pits cyclicalsvs. defensives in the S&P500) and the 2-10-yr slope ofthe US curve has been relatively tight.
Our aggregate GDP growth forecast for 2011 in theadvanced economies has come down by 30bp since lastDecember. The biggest downward revisions have been in
the UK and Asia. Consensus forecasts have increased by10bp for the advanced economies over the same period,mainly due to an upgrade to the Euro-zone numbers.Importantly, our forecasts for inflation this year haverisen by 110bp since the start of the year, and those ofconsensus have risen by 90bp. Controlling for the lowermean, the volatility of headline inflation is now as high asit was in the 1970.
These shifts in the macro outlook beg the question ofwhether changes to our bond forecasts are also warranted.To remind readers, using 10-yr Treasuries as a gauge, atthe start of the year our forecasts for the end of 2011 were25bp below the forwards; they are currently 45bp abovethe forwards. While the uncertainty around our near-termprojections is admittedly high, our strategic view remainsthat global bond yields will rise in the second half of thisyear, for the following reasons:
Treasury yields are not too high in relation tocontemporaneous measures of the output gap andconsumer inflation, according to our Taylor rule-typeestimates across US benchmark maturities, firstintroduced in the November issue of this publication.Even with the Fed Funds rate at negative 3.5%, ourestimates suggest that 10-yr T-notes should currentlytrade at 2.9%. Taking our 1-year-ahead projections forgrowth and inflation, we calculate that the termstructure should flatten from the 2-yr sector, with 10-yrrates trading at 3.6% at that horizon. Given theongoing deterioration in the growth-inflation trade-
off, we consider these estimates conservative.
The current fair value for US Treasuries is 3.4%, andthe corresponding figures for Bunds and JGBs are3.2% and 1.3%all are above the current marketyields. According to ourSudokubond valuation model,which feeds off our 1-year-ahead domestic and
Government bond yields have rallied further, mirroring the ongoing downgrade to consensus (and our own)
growth forecasts across the main economic regions. Our models suggest that higher inflation expectations
represent a significant offset to the lower outlook for real activity in determining the current fair value of bond
yields. On valuation grounds, we think 2.8% should represent an important resistance level for the UST 10-yr
(currently 3.05%). In Europe, we expect a decision on the disbursement of further financial aid to Greece to bemade in the coming weeks. We continue to believe that the larger high-yielding sovereigns (Italy, Spain,
Belgium) offer value relative to their AAA-rated EMU peers. In the year-to-date, these countries have
significantly outperformed the core ones; notably, Italy has outperformed on a volatility-adjusted basis.
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1.0
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3.0
4.0
5.0
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
%yoy Rolling 1- year-ahead InflationExpectations Continue to Rise...
US
Euroland
UK
Japan
Source: Co nsensus Economics, GS Global ECS Research
1.0
1.5
2.0
2.5
3.0
3.5
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
%yoy ...While GDP Growth ForecastsAre Being Pushed Down
US
Euroland
UK
Japan
Source: Consenus Economics, GS Global ECS Research
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international expectations for short rates, GDP growthand inflation, the shifts in the two macro factorsdescribed earlierlower growth and higher inflationbroadly cancel each other out in the determination ofequilibrium bond yields.
Our measure of the bond risk premium remainsdepressed. This could be related to the sovereignuncertainties in Euroland, as well as to the actions bythe Federal Reserve, which we calculate could haveshaved as much as 40bp off 10-yr bonds (see our Aprilissue of the Monthly). Admittedly, the premium maytake some time to reverse, but it is unlikely to declinefurther from here. Over longer horizons, we havefound that our measure of the premium is tied to 5-10-yr-ahead inflation expectations. These have been more
volatile lately, reflecting the rise in commodity prices.
In conclusion, the slowdown in activity growth appears tous already largely priced into the bond market, and risingcore inflation should prevent a decline in nominal rates.That said, the risk to our forecasts stems from a moremeaningful downward revision in growth prospects in2012-13, stemming, for example, from a fiscal
contraction in the US and Europe. This appliesparticularly to our projections for the end of 2012, but theavailable information does not allow us to reach strongconclusions either way. Using 5-yr and 10-yr USTs as agauge, on current macro information, the valuationargument starts become compelling at yield levels of
around 1.5% and 2.8%, respectively.
End Game for Greece ApproachingOn the first anniversary of the Greek financial rescue andthe eve of a fourth disbursement of quarterly funding,intense pressures on the sovereign have resurfaced. Basedon CDS and bond pricing, and assuming a recovery rateof around 45c, the market is assigning a 20-30% probability of a default occurring in the coming six
months, and a much higher cumulative probability of acredit event over the next five years.
As we discuss in the next section, a number of policyoptions are still being discussed, and more clarity shouldbe reached. Our baseline view is that Greece will be givenadditional time, and funding, to smooth out its adjustmenttowards a sustainable primary surplus. Additional
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0.6
0.8
1.0
1.2
1.4
1.6
1.8
2-yr 5-yr 10-yr 30-yr
% Smaller Output Gap by End-2012 Means HigherRates Than Forwards Discount
Taylor Type Model Projec tions
Forward Rates
Source: Bloomberg, GS Global ECS Research
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6.0
Fed FundsTarget
2-yr 5-yr 10-yr 30-yr
% Bonds Priced Consistent withNegative Fed Funds
Taylor-type Rule Yield Curve
-/+ 1 std.dev.
Current Yield Curve
Source: Blo omberg, GS Global ECS Research
1.8
2.0
2.2
2.4
2.6
2.8
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85
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105
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Aug-09 Feb-10 Aug-10 Feb-11
%Index US Bonds Track Underperformanceof Cyclical Stocks
GS Wavefront US Growth Basket (LHS)
2s-10s UST slope (RHS)
Source: GS Gl obal ECS Research
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-4
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0
2
4
00 02 04 06 08 10
% Global Bond Premium Remains Below Average
Global Bond Premium
Period average
Source: GS Gl obal ECS Research
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austerity measures and an accelerated privatisation planare currently being discussed, although the negotiationswill probably remain tense for some more weeks. We alsohold the view that the existing debt stock is in alllikelihood too high for Greece to shoulder and that someform of restructuring can be expected.
Developments in Greece understandably continue tocommand a lot of attention, as decisions taken there willset an important precedent for the Euro-zonespolicymaking (conditionality, seniority of claims, etc). Ona broader basis, a number of important developmentshave occurred over the past year.
All three program countries (Greece, Portugal andIreland) have been largely quarantined from a flow of
funds standpoint. The public sector is almost entirelyfunded by official channels (which will represent up to50% of the total debt stock by 2013), while banks relyextensively on the ECB.
The distribution of losses on existing liabilities remains politically charged, but manageable (the governmentdebt stock represents around 7% of the Euro-zones)particularly if piloted by the official sector. Secondarymarket purchases of outstanding Greek bonds by theEFSF, currently not allowed, would be a cost-efficientway of moving forwards, in our view.
At the end of March, EMU member states agreed to a
deeper integration of the areas economic governance.Moreover, common joint rescue mechanisms havebeen established.
In light of these developments, our strategy templatecontinues to highlight the divergence between the threeprogram countries and the larger high-yieldingeconomies. Yield spreads relative to Germany in Italy,Spain and Belgium incorporate, in our view, a high risk premium. Italy and Spain have been among the bestperformers since the start of the year, even controlling forvolatility.
InflationUpward Pressures ContinueOur Commodity Strategy team has recently revisedupwards their forecasts for Brent crude (fromUS$106.5/bbl to US$126.5/bbl in 12 months), Gasoline(from US$2.78/gal to US$3.36/gal), and Wheat to8.35$/bu. On the back of these new projections, we nowestimate that the contribution of food and energy prices tooverall inflation in the US and Euroland will peak later(probably between August and September) and at a higherlevel (150bp in the Euro area and around 250bp in theUS). Meanwhile, core inflation appears to have turnedupwards since the end of last year. Our focus is on themore persistent components, particularly servicesexcluding energy and rents. According to our i-Swapmetrics, 5-year inflation swaps are now more than 1standard deviation below fair value in the Euro-zone,
US and the UK. We continue to recommend long 5-yearJPY inflation swaps.
Francesco U. Garzarelli and Constantin BurgiLondon, May 27, 2011
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05 06 07 08 09 10 11 12
%, yoy Non-Core Contribution to CPI InflationExpected to Remain High
EurolandJapanUKUS
Source: GS Global ECS Research
GSF'cast
Contribution of food andenergy to headline inflation
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1000
Mar-09 Sep-09 Mar-10 Sep-10 Mar-11
bp Greater Segmentation AcrossNon-Core EMU Bonds
Program Countries (Avg. ofGreece, Ireland, Portugal)
Italy, Spain and Belgium (avg.)
Source: GS Gl obal ECS Research
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The Greek Conundrum
By Way of Background
Policymakers now acknowledge that Greeces adjustmentprogram, laid out in May of last year, contains a numberof design shortfalls. The timeline set for turning around
the structural fiscal dynamics is very front-loaded (calling
for a swing of 7% of GDP in the primary budget balance
between 2010 and 2013) and, until recently, officialfunding carried punitive rates. The program also assumes
that Greece would be able to refinance itself in markets
as early as 2012one and a half years after losing
market access, only just after achieving a primary surplus
and well before the mid-2013 expected overhaul of EMU
government bond clauses.
The Greek government lowered the deficit by around 5%of GDP last year to 10.5%, and agreed to reduce it by
another three percentage points this year. However,
further fiscal effortswhich have now entered the politically-charged phase of structural reforms and
privatizationswill have to be implemented in the
context of a weaker economy. The combination of
budgetary restraint, a stronger exchange rate and higher
energy prices has led to a contraction in nominal GDP ofa further 4.1% between Q2:10 and Q1:11, bringing the
cumulative decline since end-2008 to 6.5%.
Choose From One of the Following OptionsThere are several routes policymakers can take from here,
but they can be grouped into three broad options:
1. Modify the adjustment plan and provide Greece with a
top-up of public fundsThis remains the option advocated by the ECB, provided
the Greek government shows strong commitment to adhere
to fiscal adjustment and speeds up privatizations. It wouldinvolve acknowledging that, partly due to factors outside
of Greeces control (e.g., a stronger EUR and higher oil
prices), the country will need more time to achieve a
primary fiscal surplus, and hence that commercial funding
is unlikely to be in place until mid-2013. Under suchcircumstances, Greece would need an additional EUR60bn
to make up for bond redemptions, and at least another
EUR10-15bn to fill the funding gap, assuming
privatization proceeds yield around EUR20bn over thenext two years, or two and a half times the amount
currently budgeted by the IMF. Additional funds would presumably come mostly from EMU peers (who have
already committed EUR80bn, of which EUR37.9bn have
been disbursed to date) and probably be raised through the
EFSFa more cost-effective option than bilateral loans,
but requiring a broader political consensus. Under thisscenario, official-sector lending could represent more than
half of Greeces sovereign debt by end-2013. In order to
appease public opinion across Europe on the merits of
granting Greece more aid, the resources could be subject to
more binding clauses and be collateralized by privatizationreceipts (an option that should not trigger CDS, according
to the prevailing legal interpretation). Outside the IMF(which enjoys preferred creditor status), aid from
Eurozone countries ranks pari passu with existing
bondholders. Of note, after 2013, if the ESM (thepermanent successor to the EFSF) provides new funding,
this would be senior to private creditors (although this
could be modified) and junior to the IMF. Whether at thattime new private creditors would also demand seniority is
open to debate.
2. Buy time through a voluntary re-profiling of public
debt maturitiesLast March, Euro-zone officials decided to extend themaximum maturity of the loans provided to Greece from
3 years to 7.5 years. The IMF is considering taking
similar action, switching the assistance status for Greece
from a Stand-by Agreement to an Extended FundFacility, with the repayment profile stretching up to ten
years. Official-sector creditors could be subject to
comparability of treatment from at least a subset of
private creditors (e.g., commercial banks), probablywithout a discount of principal. Extending the maturity of
a good portion of the bonds coming due in, say, 2012-15
would release resources from the existing program, and
these could then be allocated to other usesfor example,boosting the capital base of Greek banks in the event of a
credit event down the line (see below, for more on the
recapitalization needs). Considering that around 40% of
Greek public bonds are held by financial institutions inGreece and other Euro-zone countries, an extension of
maturities for the period 2012-13 alone could release
something in the region of EUR30bn. The challenge is
making such a re-profiling take place voluntarily, i.e.,without triggering a default (although rating agencies
would nonetheless label such move as SD, selectivedefault) . This involves an appropriate mix of incentives
Greece and its official-sector creditors face important decisions in the coming weeks. The background to their
discussions will be the quarterly adjustment program review by the IMF, planned ahead of a fourth
disbursement of financial aid.
Breakdown of Greek Public Debt by Holder
as of Q1:2011 % of total
Greek Banks 17.9
Other Greek Residents 6.9
Total Greek Private Sector 24.8
Bank of Greece 5.9
ECB 17.6
Bilateral Loans + IMF 18.5
Total Official Sector 42.0
Eurozone Banks 17.1
Other Holders Outside Greece 16.2
Total Non Greek Private Sector 33.3
Source: Bank of Greece, IMF, GS estimates
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(the type of securities used to replace maturing ones) and
penalties for not participating in the exchange (usually,
the threat of default does the trick, but in Europe that
threat is less credible than in emerging economies).Potential violations of inter-creditor equity and the need
for coordination among different jurisdictions are amongthe issues that need to be taken into account, if this option
is pursued, as is the possibility of contagion. The
response of Ireland and Portugal, for example, would also
need to be considered.
3. Declare that debt dynamics are unsustainable and
manage a restructuringAccording to Eurostat, Greek public debt stood at
142.8% of GDP last year, and is currently officiallyprojected to peak at about 160% in 2013. The argument is
frequently put forward that such a high level of debt istoo onerous for Greece, particularly given that three-
quarters of its creditors are residents of other EMU
countries. Some commentators go as far as to argue thatrestructuring the debt now could clear the air, allowing
the country to return to markets sooner. As early as in
May 2010, the IMF admitted that medium-termsustainability was subject to significant uncertainties.
But, at the time, the Fund argued that aid was nonetheless
justified given a high risk of international systemicspillover effects. In its third review, published at the end
of February, an update to the debt sustainability analysis
(DSA) continued to emphasize the risks surrounding the
baseline case, and contained conservative assumptions onprivatization receipts (a total of EUR6bn in 2012-13). Anew DSA will be made public in the coming weeks with
the fourth review. In the (unlikely, in our view) event
that debt dynamics are considered to be unsustainable,
the Fund would not be able to disburse any further funds.This helps explain the recent emphasis on speeding up
privatizations, as they would compensate for the
deterioration in the underlying fiscal dynamics (and helpunlock a funding top up by other EMU members). As to
the potential impact of a haircut on sovereign debt,
opinions vary significantly. In a narrow sense, at least, a
Greek default would appear manageable according toestimates run by our European bank research team.
Assuming a 60% haircut (which is roughly what the
market is currently discounting), the impact on European
commercial banks would amount to around EUR41bn(broken down as around EUR25bn in Greece, EUR3.8bn
in France, EUR7.5bn in Germany and the remainder in
other countries). This would correspond at most to a 36bp
hit to aggregate European Tier 1 capital ratios (52bp inGermany and 23bp in France) and thus would notrepresent a threat to the stability of the financial system.1
Based on such a large haircut assumption, the hit onGreek banks would instead be commensurately big,
wiping out 80% of Tier 1 capital, equivalent to around
170% of current market cap. Thus, recapitalizing the
Greek institutions with some EUR30-40bn of funding
would seem a necessary precondition ahead of arestructuring. As to the possibility of contagion, the hit to
European banks should Portugal and Ireland also both
decide to apply a 60% haircut appears small (an
additional 30bp hit to aggregate European Tier 1 ratios).
Importantly, the market is currently treating the fortunesof Greece and the other two program countries (Ireland
and Portugal) as broadly separate from those of othernon-core markets, such as Italy, Spain and Belgium. But
whether this pattern will hold also in the event of a Greek
default is hard to say. Other known unknowns include
where short Greek sovereign CDS risk is ultimatelywarehoused, and what could be the net impact of a
sovereign default on pension funds and insurance
companies, where data on holdings is less accessible.
The Greek ConundrumWhere policymakers will place themselves along this
spectrum of options (and combinations thereof) is thesubject of intense debate among investors.
There are a few points that we think should be taken into
account in the discussions.
Both Greece and its EMU peers share an interest in thecountry reaching a primary budget surplus (i.e., put
1. Includes only banks that participated in the European stress test. SeeEuropean bank exposure to Greece revisited, April 20, 2011.
0
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EUR bn Maturity Profile of Greek Public Debt
Official loans
Interest Payments
Bond Principal
Source: Bank of G reece, IMF, GS G lobal ECS Research estimates
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2-year 5-year 10-year 30-year
% of par Greece: Benchmark Bond Yields
19-Oct-09
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26-May-11
Source: GS Global ECS Research
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Greece Inc. on a sustainable cash flow positive
trajectory) in an orderly fashion. This is a necessary
condition for the sovereign to eventually return to
market, and for its public-sector sponsors to bereassured they are not feeding unsustainable dynamics.
In the absence of an offset to fiscal tightening from
easier financial conditions (the ECB is not easing ratesin response to the weakness in Greek domestic
demand; oil prices and the EUR continue to work in
the wrong direction), a more lenient fiscal approach is
probably opportune.
Buying Greece more time to reach a primary surplus
requires more money. Topping up the size of the
program or keeping the existing bondholders tied to thecredit for longer, so that existing resources can be
diverted to bridge the cash flow shortfall rather than
paying redemptions, is ultimately a question of politicalchoice. As European Parliaments may be hostile to
committing more funds, keeping existing creditors
involved has its advantages (an option that has several
historical precedents, as we have highlighted for severalmonths in our research, and which we think has merits).
Not all investors can be brought into a debt exchange,
other than through retroactive legislation forcing them to
agree, and this may create transfers of wealth across
investors (which may have already whetted some
appetites, judging from the buying in 2-5-yr maturities).
The question of the sustainability of the existing debtstock is a different one, involving the distribution of
potential losses among creditors, the current
generation of taxpayers and future ones. We continue
to believe that going for a haircut now, with Greece
still running a cash flow deficit, carries more costs
than benefits. Even in this event, funding in 2012-13
will most likely still need to be provided by the officialsector, and the backlash on growth and on the
commitment to deliver deep-seated adjustments may
be negative.
The issue of contagion cannot be easily dismissed, in
our view, although the cross-section of prices would
currently suggest differently. The CDS market prices a20% chance of a credit event by the end of this year
(assuming a 45cent recovery, roughly the cash price of
the Greek 30-yr bond), and a much higher probability of
a default over the next 5-years (the cumulative
Year of Default Defaulting CountryAverage Trading Price**
(% of par)
PV*** Ratio of Cash Flows
(ratio in %)
1998 Russia 18 50
1999 Pakistan 52 65
1999 Ecuador 44 60
2000 Ukraine 69 602000 Ivory Coast* 18 NA
2001 Argentina 27 30
2002 Moldova 60 95
2003 Uruguay 66 85
2004 Grenada* 65 NA
2005 Dominican Republic 95 95
2006 Belize 76 NA
2008 Seychelles* 29 NA
2008 Ecuador 26 NA
50 68
31 38* Not rated by Moodys at the time of default.
** 30-day post-default price or pre-distressed exchange trading price.
Source: Moody's, Sovereign Default and Recovery Rates, 1983-2008 (March 2009)
Recovery Rates on Defaulted Sovereign Bond Issuers
Issuer-Weighted Recovery Rates
Value-Weighted Recovery Rates
*** Ratio of the present value of cash f lows received as a result of the distressed exchange versus those initially promised, discounted using
yield to maturity immediately prior to default (Source: Bank of England (2005)).
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End 2011 2-yr 5-yr 10-yr
% Cumulative Unconditional Probability ofGreek Default Implied by CDS*
*Assuming 45c recoverySource: GS Global ECS Research
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probability is close to 90% over the next 5-years). Andyet indicators of systemic risk in the Euro-zone are much
healthier today than a year ago. In our view, there is only
a small probability that the shockwaves from a Greek
restructuring will materially affect bigger countries,such as Spain, which are busy fixing problems in their
own banking sector. But if Spain were indeed to face
pressures, the current endowment of rescue funds would
most likely be insufficient to take on market forces, anda round of asset purchases by the ECB would probably
be the only credible fire-breaker. Policy risk
management should account for this timing issue.
On most plausible macro scenarios, the Greek stock of
public debt will have to be restructured eventually, as it is
difficult to see Greece being able (or wanting) to sustain thebond rollover schedule it used to have before the crisis. The
level at which Greek GDP growth and the fiscal position
stabilize in the next few years will allow policymakers and
investors to form a better judgment on the countrys debt
capacity.
A managed deleveraging could be facilitated by the
transfer of bonds into the official sector, which hasalready started. The process could receive a boost from
secondary market bulk purchases of Greek bondsat a
discount, but at the risk of pushing market priceshigherby the other Euro-zone governments, either in
exchange for cash or other securities. The EFSF is
currently authorized only to conduct primary market
interventions, but this could change. In the process, the
ECB could be relieved of its intervention portfolio ataverage cost. The official entity that has purchased the
securities would then have a range of options at its
disposal, including extending maturities and sitting on the
bonds while benefiting from a positive carry, arranginga reduction of principal orour preferred solution
accepting subordination to new funding.
Francesco U. GarzarelliLondon, May 27, 2011
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Interest Rate Forecasts
Forecasts Forward Gov't Rate Swap RateSwap rate
(Forward)
27-May-11 0.3 0.3 - 3.1 3.2 -
Jun-11 0.2 0.4 0.3 3.5 3.8 3.2
Sep-11 0.2 0.4 0.3 3.8 4.1 3.3
Dec-11 0.2 0.5 0.4 3.8 4.1 3.4
Mar-12 0.2 0.5 0.5 4.0 4.4 3.6
Jun-12 0.2 0.5 0.7 4.0 4.4 3.8
Dec-12 0.2 0.8 1.1 4.3 4.6 4.0
27-May-11 1.3 1.4 - 3.0 3.3 -
Jun-11 1.3 1.3 1.5 3.3 3.6 3.3
Sep-11 1.5 1.6 1.7 3.3 3.6 3.4
Dec-11 1.8 1.9 1.8 3.5 3.7 3.5
Mar-12 1.8 2.0 1.9 3.5 3.8 3.5
Jun-12 2.0 2.3 2.0 3.5 3.8 3.7
Dec-12 2.5 2.8 2.3 4.0 4.3 3.8
27-May-11 0.1 0.2 - 1.1 1.2 -
Jun-11 0.1 0.4 0.3 1.3 1.4 1.2
Sep-11 0.1 0.4 0.3 1.4 1.5 1.2
Dec-11 0.1 0.4 0.3 1.6 1.8 1.3
Mar-12 0.1 0.4 0.3 1.7 1.9 1.3
Jun-12 0.1 0.4 0.3 1.8 2.0 1.4
Dec-12 0.1 0.4 0.4 1.9 2.1 1.6
27-May-11 0.5 0.8 - 3.3 3.5 -
Jun-11 0.5 0.8 0.8 3.5 3.7 3.5
Sep-11 0.5 0.9 0.9 3.8 4.0 3.6
Dec-11 0.8 1.1 1.0 4.0 4.2 3.7
Mar-12 1.0 1.3 1.2 4.3 4.5 3.8
Jun-12 1.3 1.6 1.4 4.5 4.8 3.9
Dec-12 2.0 2.3 1.8 4.8 5.0 4.1
27-May-11 1.0 1.2 - 3.0 3.3 -
Jun-11 1.0 1.3 1.3 3.8 4.0 3.4
Sep-11 1.0 1.4 1.3 3.8 4.0 3.4
Dec-11 1.3 1.8 1.5 4.0 4.2 3.5
Mar-12 1.8 2.3 1.7 4.0 4.3 3.6
Jun-12 2.3 2.6 1.8 4.3 4.6 3.8
Dec-12 2.5 2.6 2.2 4.5 4.8 4.0
Source: Bloomberg, GS Global ECS Research
Interest Rate Forecasts: Policy, Interbank, 10-yr Gov't and 10-yr Swap Rates
Date Policyrate
3-mth rates 10-yr rates
Canada
UK
Japan
Germany
USA
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8/6/2019 GS Fixed Income Monthly May 2011
10/20May 201110
Fixed Income MonthlyGoldman Sachs Global ECS Research
Forecasts Forward Gov't Rate Swap RateSwap rate
(Forward)
27-May-11 4.8 5.0 - 5.2 5.8 -
Jun-11 4.8 5.0 5.0 5.6 6.1 5.7
Sep-11 4.8 5.1 5.1 5.8 6.3 5.8
Dec-11 5.0 5.3 5.1 5.8 6.3 5.8
Mar-12 5.3 5.5 5.1 6.0 6.5 5.8
Jun-12 5.3 5.5 5.2 6.0 6.5 5.9
Dec-12 5.3 5.5 5.3 6.3 6.8 6.0
27-May-11 0.3 0.2 - 1.8 2.2 -
Jun-11 0.3 0.3 0.2 2.0 2.4 2.2
Sep-11 0.5 0.3 0.2 2.3 2.7 2.3
Dec-11 0.8 0.5 0.3 2.5 2.9 2.3
Mar-12 1.3 0.8 0.5 2.5 2.9 2.4
Jun-12 1.8 1.3 0.6 2.8 3.2 2.5
Dec-12 2.8 2.3 1.0 3.3 3.7 2.7
27-May-11 1.8 2.5 - 2.9 3.5 -
Jun-11 1.8 2.5 2.4 3.5 3.9 3.6
Sep-11 2.3 2.9 2.7 3.8 4.2 3.6
Dec-11 2.8 3.3 2.9 3.8 4.2 3.6
Mar-12 3.0 3.5 3.0 4.0 4.5 3.6
Jun-12 3.3 3.8 3.1 4.0 4.5 3.7
Dec-12 3.8 4.2 3.2 4.3 4.8 3.7
27-May-11 2.5 2.8 - 5.1 5.2 -
Jun-11 2.5 2.7 2.6 5.8 5.9 5.2
Sep-11 2.5 2.7 2.7 5.8 5.9 5.3
Dec-11 2.5 2.7 2.9 6.0 6.2 5.4
Mar-12 3.0 3.4 3.2 6.2 6.4 5.5
Jun-12 3.5 3.9 3.5 6.3 6.5 5.6
Dec-12 3.8 4.1 4.1 6.5 6.7 5.8
27-May-11 2.3 2.8 - 3.4 4.4 -
Jun-11 2.3 2.8 2.8 4.0 4.7 4.4
Sep-11 2.5 3.0 3.0 4.0 4.7 4.4
Dec-11 2.8 3.2 3.1 4.3 5.1 4.5
Mar-12 3.0 3.5 3.3 4.3 5.1 4.5
Jun-12 3.3 3.7 3.4 4.5 5.3 4.6
Dec-12 3.8 4.2 3.8 4.8 5.6 4.7
Source: Bloomberg, GS Global ECS Research
Interest Rate Forecasts: Policy, Interbank, 10-yr Gov't and 10-yr Swap Rates
3-mth rates 10-yr ratesPolicyrate
Date
Australia
Switzerland
Sweden
New
Zealand
Norway
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8/6/2019 GS Fixed Income Monthly May 2011
11/20May 201111
Fixed Income MonthlyGoldman Sachs Global ECS Research
GS SudokuValuation Model Output
CE GS CE GS GS
USA 3.07 -0.6 -0.4 3.40 3.31 0.05
Germany 3.00 -0.3 -0.2 3.18 3.14 0.08
Japan 1.13 -0.4 -0.2 1.29 1.22 0.00
UK 3.33 -0.4 -0.2 3.63 3.53 0.09
Canada 3.04 -0.7 -0.6 3.70 3.60 0.09
Australia 5.23 0.0 0.1 5.26 5.15 -0.05
Switzerland 1.83 -0.2 0.0 1.91 1.82 0.13
Sweden 2.87 0.2 0.2 2.64 2.52 0.12
Source: GS Global ECS Research
10-yr Bond Yields: Market vs GS Sudoku Model*, Spot and 3 Months into the Future
Misvaluation against fair
value***, standard
deviations
Fair value***, %
Fair value change
(due to change in
fundamentals),
t + 3mth
* Details in Chapter 12 of The Foreign Exchange Market (2006), Global Viewpoint 07/24 and Global Viewpoint 08/04. **Last close.
***CE stands for Consensus Economics inputs of macroeconomic fundamentals (latest available month), GS stands for GS Economic
Research inputs (current month).
Actual** (%)
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
St.Dev. Degree of 10-yr Bond Misvaluation
According to Sudoku (I)*
USA Germany
Japan UK
Source: GS Global ECS Research * Latest data point used is last close.
-1 St.Dev.
-2 St.Dev.-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
St.Dev. Degree of 10-yr Bond MisvaluationAccording to Sudoku (II)*
Canada Australia
Switzerland Sweden
Source: GS Global ECS Research * Latest data po int used is last close.
-1 St.Dev.
-2 St.Dev.
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8/6/2019 GS Fixed Income Monthly May 2011
12/20May 201112
Fixed Income MonthlyGoldman Sachs Global ECS Research
Source: Datastream, Goldman Sachs.
1.0
2.0
3.0
4.0
5.0
6.0
7.0
00 01 02 03 04 05 06 07 08 09 10 11
%USA, 10-yr Bond Yield
Actual
Fundamental
+/- 2 St.Dev.
1.0
2.0
3.0
4.0
5.0
6.0
7.0
00 01 02 03 04 05 06 07 08 10 11
%Germany, 10-yr Bond Yield
Actual
Fundamental
+/- 2 St.Dev.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
00 01 02 03 04 05 06 07 08 09 10 11
%Japan, 10-yr Bond Yield
Actual
Fundamental
+/- 2 St.Dev.
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
00 01 02 03 04 05 06 07 08 09 10 11
%UK, 10-yr Bond Yield
Actual
Fundamental
+/- 2 St.Dev.
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
00 01 02 03 04 05 06 07 08 09 10 11
%Canada, 10-yr Bond Yield
Actual
Fundamental
+/- 2 St.Dev.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
00 01 02 03 04 05 06 07 08 09 10 11
%Sweden, 10-yr Bond Yield
Actual
Fundamental
+/- 2 St.Dev.
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
00 01 02 03 04 05 06 07 08 09 10 11
%Switzerland, 10-yr Bond Yield
Actual
Fundamental
+/- 2 St.Dev.
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
00 01 02 03 04 05 06 07 08 09 10 11
%Australia, 10-yr Bond Yield
Actual
Fundamental
+/- 2 St.Dev.
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8/6/2019 GS Fixed Income Monthly May 2011
13/20May 201113
Fixed Income MonthlyGoldman Sachs Global ECS Research
Policy Rates Outlook: GS Forecast vs. Market
0.0
0.1
0.2
0.3
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
% Japan: Overnight Call Rate
GS Forecast
Implied by OIS
Source: Blo omberg, GS Global ECS Research
0.0
0.5
1.0
1.5
2.0
2.5
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
% UK: Bank of England Repo Rate
GS Forecast
Implied by OIS
Source: Blo omberg, GS Global ECS Research
0.5
1.0
1.5
2.0
2.5
3.0
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
% Euro-area: ECB Main Refinancing Rate
GS Forecast
Implied by OIS
Source: Blo omberg, GS Global ECS Research
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
%US: Federal Funds Rate
GS Forecast
Implied by OIS
Source: Blo omberg, GS Global ECS Research
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
%Canada: Overnight Interest Rate Target
GS Forecast
Implied by OIS
Source: Blo omberg, S Global ECS Research
4.50
4.75
5.00
5.25
5.50
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
%Australia: RBA Cash Rate
GS Forecast
Implied by OIS
Source: Bloomberg, GS Global ECS Research
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
%Switzerland: 3-mth LIBOR Middle Target
GS Forecast
Implied by OIS
Source: Blo omberg, GS Global ECS Research
1.0
1.5
2.0
2.5
3.0
3.5
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12
%Sweden: Riksbank Repo Rate
GS Forecast
Implied by OIS
Source: Bloomberg, GS Global ECS Research
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8/6/2019 GS Fixed Income Monthly May 2011
14/20May 201114
Fixed Income MonthlyGoldman Sachs Global ECS Research
GS CurveValuation Model Output: US and Germany
-0.80
-0.30
0.20
0.70
1.20
1.70
2.20
2.70
3.20
3.70
4.20
4.70
5.20
3m 6m 1y 2y 3y 5y 7y 10y 20y 30y
%USD Yield Curve: Actual vs GS Curve*
Actual (27/5/2011)
Fitted
Fair (Fundamental)Fair (Dynamic)
Source: Goldman Sachs.
* GS Curve output using
May 2011 data.
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
3m 6m 1y 2y 3y 5y 7y 10y 20y 30y
% USD Yield Curve Dynamics
Actual (27/5/2011)
Actual, month before (27/4/2011)
Actual, quarter before (26/2/2011)
Source: Goldman Sachs.
USD Yield Spreads: Market vs GS Curve*bp 2-5y 2-10y 5-10y 10-30y 2-5-10y** 2-10-30y**
Actual (27/5/2011) 125 258 133 116 -4 71
Fitted 132 263 131 116 0 74
Fair (Fundamental) 158 273 115 93 22 90
Fair (Dynamic) 147 272 125 107 11 83
Source: Goldman Sachs.
* Details in Chapter 11 ofThe FX Market (2007) and Global Viewpoint 08/16. Fundamental fair
value is based on economic variables only. Dynamic fair value also accounts for the past
dynamics of yields. ** A-B-Cy 'butterflies' are calculated as B-(0.5A+0.5C).
0.00
1.00
2.00
3.00
4.00
5.00
3m 1y 3y 5y 7y 9y 20y
%DEM Yield Curve: Actual vs GS Curve*
Actual (27/5/2011)
Fitted
Fair (Fundamental)
Fair (Dynamic)
Source: Goldman Sachs.
* GS Curve output usingMay 2011 data.
0.00
1.00
2.00
3.00
4.00
5.00
6.00
3m 1y 3y 5y 7y 9y 20y
% DEM Yield Curve Dynamics
Actual (27/5/2011)
Actual, month before (27/4/2011)
Actual, quarter before (25/2/2011)
Source: Goldman Sachs.
DEM Yield Spreads: Market vs GS Curve*
bp 2-5y 2-10y 5-10y 10-30y 2-5-10y** 2-10-30y**
Actual (27/5/2011) 67 139 72 53 -3 43
Fitted 81 148 67 56 7 46
Fair (Fundamental) 76 155 78 70 -1 42
Fair (Dynamic) 88 150 62 50 13 50
Source: Goldman Sachs.
* Details in Chapter 11 ofThe FX Market (2007) and Global Viewpoint 08/16. Fundamental fair
value is based on economic variables only. Dynamic fair value also accounts for the past
dynamics of yields. ** A-B-Cy 'butterflies' are calculated as B-(0.5A+0.5C).
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8/6/2019 GS Fixed Income Monthly May 2011
15/20May 201115
Fixed Income MonthlyGoldman Sachs Global ECS Research
GS CurveValuation Model Output: Japan and UK
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
3m 1y 2y 3y 4y 5y 7y 10y 15y 20y 30y
% GBP Yield Curve: Actual vs GS Curve*
Actual (27/5/2011)
Fitted
Fair (Fundamental)
Fair (Dynamic)
Source: Goldman Sachs.
* GS Curve output usingMay 2011 data.
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
3m 1y 2y 3y 4y 5y 7y 10y 15y 20y 30y
% GBP Yield Curve Dynamics
Actual (27/5/2011)
Actual, month before (26/4/2011)
Actual, quarter before (24/2/2011)
Source: Goldman Sachs.
GBP Yield Spreads: Market vs GS Curve*
bp 2-5y 2-10y 5-10y 10-30y 2-5-10y** 2-10-30y**
Actual (27/5/2011) 120 212 92 142 14 35
Fitted 109 233 124 112 -7 60
Fair (Fundamental) 131 214 83 64 24 75
Fair (Dynamic) 124 226 101 85 12 70
Source: Goldman Sachs.
* Details in Chapter 11 ofThe FX Market (2007) and Global Viewpoint 08/16. Fundamental fair
value is based on economic variables only. Dynamic fair value also accounts for the past
dynamics of yields. ** A-B-Cy 'butterflies' are calculated as B-(0.5A+0.5C).
0.00
0.50
1.00
1.50
2.00
2.50
3m 1y 3y 5y 7y 9y 15y 30y
% JPY Yield Curve Dynamics
Actual (27/5/2011)
Actual, month before (26/4/2011)
Actual, quarter before (24/2/2011)
Source: Goldman Sachs.
-0.30
0.20
0.70
1.20
1.70
2.20
3m 1y 3y 5y 7y 9y 15y 30y
%JPY Yield Curve: Actual vs GS Curve*
Actual (27/5/2011)
Fitted
Fair (Fundamental)Fair (Dynamic)
Source: Goldman Sachs.
* GS Curve output usingMay 2011 data.
JPY Yield Spreads: Market vs GS Curve*
bp 2-5y 2-10y 5-10y 10-30y 2-5-10y** 2-10-30y**
Actual (27/5/2011) 24 95 72 89 -24 3
Fitted 53 124 72 67 -9 29
Fair (Fundamental) 63 132 69 62 -3 35
Fair (Dynamic) 62 138 76 69 -7 34
Source: Goldman Sachs.
* Details in Chapter 11 ofThe FX Market (2007) and Global Viewpoint 08/16. Fundamental fair
value is based on economic variables only. Dynamic fair value also accounts for the past
dynamics of yields. ** A-B-Cy 'butterflies' are calculated as B-(0.5A+0.5C).
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8/6/2019 GS Fixed Income Monthly May 2011
16/20May 201116
Fixed Income MonthlyGoldman Sachs Global ECS Research
GS iSwapValuation Model Output
1.5
1.7
1.9
2.1
2.3
2.5
2.7
1yr 2yr 5yr 10yr 15yr 20yr
% EUR Inflation Swap Curve, Fair & Actual
Fair
Current
Source: GSGlo balECSResearch
0.8
1.3
1.8
2.3
2.8
3.3
1yr 2yr 5yr 10yr 15yr 20yr
% USD Inflation Swap Curve, Fair & Actual
Fair
Current
Source: GSGlo balECSResearch
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1yr 2yr 5yr 10yr 15yr 20yr
% JPY Inflation Swap Curve, Fair & Actual
Fair
Current
Source: GSGlo balECSResearch
2.5
3
3.5
4
4.5
5
1yr 2yr 5yr 10yr 15yr 20yr
% GBP Inflation Swap Curve, Fair & Actual
Fair
Current
Source: GSGlo balECSResearch
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.32.5
2.7
2.9
04 05 06 07 08 09 10 11
% Euroland 5-yr Fair and Actual*
Actual
Fair (based on our iSwap model)
Source: GS Global ECS Research *Last Close
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
04 05 06 07 08 09 10 11
% US 5-yr Fair and Actual*
ActualFair (based on our iSwap model)
Source: GS Global ECS Research *Last Close
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
04 05 06 07 08 09 10 11
% Japan 5-yr Fair and Actual*
Actual
Fair (based on our iSwap model)
Source: GS Global ECS Research *Last Close
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
04 05 06 07 08 09 10 11
% UK 5-yr Fair and Actual*
Actual
Fair (based on our iSwap model)
Source: GS Global ECS Research *Last Close
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8/6/2019 GS Fixed Income Monthly May 2011
17/20May 201117
Fixed Income MonthlyGoldman Sachs Global ECS Research
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
05 06 07 08 09 10 11
Contribution of Food to Headline
Japan
US
Euroland
UK
Source: GS calculations.
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
05 06 07 08 09 10 11
Contribution of Core Goods to Headline
Japan
US
Euroland
UK
Source: GS calculations.
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
-0.10%
-0.05%
0.00%
0.05%
0.10%
0.15%
0.20%
05 06 07 08 09 10 11
Contribution of Rents and OER to Headline
Japan
Euroland
UK
US (RHS)
Source: GS calculations.
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
05 06 07 08 09 10 11
Contribution of ex-housing Services toHeadline
Japan US
Euroland UK
Source: GS calculations.
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
05 06 07 08 09 10 11
Contribution of Energy to Headline
Japan
US
Euroland
UK
Source: GS calculations.
Food EnergyCore
goods
Services
ex-
housing
Housing
yoy
Japan -0.8% 6.8% -0.2% 0.5% -0.4%
US 3.9% 18.2% 0.7% 2.1% 1.0%
Euroland 2.1% 12.6% 1.0% 2.0% 1.4%
UK 7.4% 9.7% 1.9% 4.6% 2.3%
weightsJapan 0.20 0.07 0.20 0.34 0.18
US 0.08 0.09 0.21 0.34 0.30
Euroland 0.15 0.10 0.29 0.36 0.06
UK 0.11 0.09 0.31 0.40 0.05
= contribution
Japan -0.16% 0.51% -0.04% 0.17% -0.07%
US 0.31% 1.56% 0.16% 0.73% 0.28%
Euroland 0.32% 1.21% 0.30% 0.70% 0.08%
UK 0.80% 0.85% 0.61% 1.83% 0.12%
G4 Inflation Breakdown*
* Reclassified by GS so as to make the sub-components fully
comparable across ec onomies (see Global View point No: 07/14)
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
05 06 07 08 09 10 11
Contribution of Food to Headline
Japan
US
Euroland
UK
Source: GS calculations.
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
05 06 07 08 09 10 11
Contribution of Core Goods to Headline
Japan
US
Euroland
UK
Source: GS calculations.
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8/6/2019 GS Fixed Income Monthly May 2011
18/20May 201118
Fixed Income MonthlyGoldman Sachs Global ECS Research
Main Economic Forecasts
For our latest Currency and GSDEER forecasts please refer to the Goldman Sachs institutional portal(https://portal.gs.com/gs/portal/research/econ/econmarkets/).
For India we use WPI not CPI. Asia consists of China, Hong Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea,Taiwan, Thailand.
Central Bank Policies
Current Situation Next Meetings Expectation
Jun-22
Aug-09
Jun-14
Jul-12
Jun-09
Jul-07
UK: BoE Monetary Jun-09
Policy Committee Jul-07
EUROLAND: ECB
Governing Council
The ECB hiked rates by 25bp to
1.25% on April 7, 2011.
We expect the ECB to continue hiking to
1.75% by end-2011.
The BoE cut rates by 50bp to 0.5%
on March 5, 2009.
We expect the BoE to keep the policy rate
on hold until a 25bp hike in Q4 2011.
UNITED STATES:
FOMC
The Fed cut the funds rate to a range
of 0%-0.25% on December 16, 2008.
We expect the Fed to keep the funds rate
near 0% through the end of 2012.
JAPAN: BoJ Monetary
Policy Board
The BoJ cut the overnight call rate to
a range of 0%-0.1 on October 5,
We expect the BoJ to keep the policy rate
near 0% through the end of 2012.
GDP Forecast: %change yoy CPI Forecast: %change yoy
2009 2010 2011 2012 2009 2010 2011 2012
USA -2.6 2.9 2.6 3.2 USA -0.3 1.7 3.1 2.1Euroland -4.1 1.7 2.0 1.7 Euroland 0.3 1.6 2.8 2.1
Japan -6.3 4.0 -0.8 3.0 Japan -1.3 -0.7 0.7 0.3
UK -4.9 1.3 1.9 2.6 UK 2.2 3.3 4.2 2.2
Canada -2.5 3.1 3.0 3.3 Canada 0.3 1.8 2.5 2.0
Australia 1.3 2.7 2.5 3.7 Australia 1.8 2.8 3.4 2.8
Switzerland -1.9 2.6 2.2 2.3 Switzerland -0.5 0.7 0.8 1.6
Sweden -5.3 5.3 4.6 3.1 Sweden -0.3 1.3 3.2 3.1
New Zealand -1.7 1.5 1.5 3.9 New Zealand 2.1 2.3 4.4 2.7
Norway -1.6 0.3 1.6 2.7 Norway 2.2 2.4 1.5 2.1
Brazil -0.6 7.5 4.5 4.0 Brazil 4.9 5.2 6.6 6.5
Russia -7.9 4.0 5.3 5.6 Russia 11.7 6.8 8.4 6.2
India 7.7 8.5 7.5 7.8 India 3.8 9.6 8.1 5.1China 9.2 10.3 9.4 9.2 China -0.7 3.3 4.7 3.0
G7 -3.7 2.8 2.0 2.8 G7 -0.1 1.4 2.7 1.8
G10 -3.5 3.0 2.1 3.0 G10 -0.1 1.4 2.7 1.9
G20 -0.5 5.0 4.3 4.7 G20 1.3 3.1 4.1 3.1
Advanced Economies -3.3 3.0 2.2 2.9 Advanced Economies 0.2 1.6 2.9 2.0
BRICs 5.6 8.8 7.9 7.9 BRICs 2.5 5.4 6.1 4.2
Asia 4.1 8.3 6.4 7.1 Asia 0.6 3.7 4.6 3.2
Asia ex Japan 6.4 9.2 7.8 7.9 Asia ex Japan 1.1 4.7 5.4 3.8
Central and Eastern Europe -1.0 3.0 3.6 3.9 Central and Eastern Europe 3.0 2.7 3.7 3.0
Latin America -1.9 6.2 4.9 4.3 Latin America 6.2 6.2 6.7 6.5
Emerging Markets 3.3 7.9 7.1 7.0 Emerging Markets 3.9 5.8 6.4 5.0
World -0.6 5.1 4.3 4.7 World 1.7 3.4 4.4 3.4
-
8/6/2019 GS Fixed Income Monthly May 2011
19/20May 201119
Fixed Income MonthlyGoldman Sachs Global ECS Research
Trading recommendations
Date Date
TOP TEN
1. Stay long 5-yr JPY Inflation Swaps 16-Feb-11 -13 bp 40 bp 8 bp n/a n/a 21.0 bp
TACTICAL
1. Stay long 30-yr Greece (4.6% Sep 2040) 03-Sep-10 54 c n/a 28-Apr-11 49.1 c -4.9 c
2. Close short 5-yr EONIA 13-Jan-11 2.08 % n/a 03-Feb-11 2.44 % 38 bp
3. Close Paying 3m2yr ILS rates vs USD 18-Feb-11 288 bp n/a 14-Mar-11 327 bp 39* bp
4. Stay long 10-yr Spain vs Italy 25-Feb-11 54 bp n/a 20-May-11 82 bp -28 bp
5. Pay 5-yr Swiss swap rates vs Euroland 04-Mar-11 -137 bp -100 bp -130.9 bp below -152 bp n/a n/a 6.1 bp
6. Stay Short 5-yr UST 18-Mar-11 1.94 % n/a 03-May-11 1.98 % 0* %
7. Pay 5-yr Korean swaps 18-Mar-11 4.04 % 4.40 % 3.96 % below 3.80 % n/a n/a -0.08 %
8. Pay 2-yr GBP rates vs EUR 29-Mar-11 -48 bp n/a 12-Apr-11 -66 bp -18* bp
*including carry. Source: GS Global ECS Research
n/a
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STOP
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RATE TRADES IN 2011OPENED LAST CLOSE CLOSED
POTENTIAL
PROFIT
At At At
TARGET
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8/6/2019 GS Fixed Income Monthly May 2011
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Fixed Income MonthlyGoldman Sachs Global ECS Research
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