Goldman Sachs advises investors to lay out Australian bonds to obtain some relief because it expects the Bank of Australia to raise interest rates less often than market expectations. “The number of interest rate hikes implicit in current market pricing is about three more times than at the end of the previous cycle. This will bring policy interest rates to the level before the global financial crisis, and the inflation rate at that time was about 1 percentage point higher than it is now.” A team of strategists led by George Cole wrote in a September 25 report. “We believe this makes it more likely that the Bank of Australia's actual interest rate hike will fall short of current policy pricing, even though the overall global environment for long-term assets remains challenging due to continued energy price fluctuations.” Goldman Sachs tends to “do steep 2s5s10s butterfly transactions” to lay out the easing of the bond market rather than directly going long. Currently, the valuation of this butterfly transaction is at the lower end of the range of the past two years. The bank has raised the year-end forecast for Australian 10-year Treasury yields from 4.7% to 5.0%.

Goldman Sachs advises investors to lay out Australian bonds to obtain some relief because it expects the Bank of Australia to raise interest rates less often than market expectations. “The number of interest rate hikes implicit in current market pricing is about three more times than at the end of the previous cycle. This will bring policy interest rates to the level before the global financial crisis, and the inflation rate at that time was about 1 percentage point higher than it is now.” A team of strategists led by George Cole wrote in a September 25 report. “We believe this makes it more likely that the Bank of Australia's actual interest rate hike will fall short of current policy pricing, even though the overall global environment for long-term assets remains challenging due to continued energy price fluctuations.” Goldman Sachs tends to “do steep 2s5s10s butterfly transactions” to lay out the easing of the bond market rather than directly going long. Currently, the valuation of this butterfly transaction is at the lower end of the range of the past two years. The bank has raised the year-end forecast for Australian 10-year Treasury yields from 4.7% to 5.0%.