The firm says investors are discounting too much at the front end of the curve
Australia's 10-year bond yields dropped to a record low today and Goldman Sachs thinks that this could just be the beginning. The firm argues that investors are a bit too complacent about the front end of the Australian yield curve and that leaves an opportunity to bet for the curve will flatten.
"With the unemployment rate at decade lows at 4.9% we continue to think the market is discounting too much at the very front end. The RBA may eventually be drawn into a cutting cycle should data deteriorate from here, but relative to current pricing we think risk-reward favours curve flatteners", based on a note by the firm.
They mention that such a trade should perform amid a global bond rally and continue to work well into the RBA's April meeting.
