2016 Rates Outlook: A Reflationary Year – Goldman Sachs

By FXStreet FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that their macro rates outlook for 2016 revolves around their view that investors are pricing in too little inflation compared with the underlying wage and price dynamics in the US and possibly in the UK, as well as the still accommodative stance of monetary and fiscal policy in the major developed economies.

Key Quotes

“Over the course of the year, as headline inflation accelerates, we expect investors to reprice their expectations for inflation in developed markets to the upside. The correlation between stocks and bond returns will also increase and could turn positive, such that bonds would become less attractive from a hedging perspective.

Our Directional View on G4 Rates: Bearish

We maintain our bearish directional view on duration and expect higher nominal rates than the forwards discount. We expect realized rates volatility to remain elevated at least as long as there is uncertainty about the pace of hikes in the US and around the underlying trend in inflation in major economies.

Relative Opportunities in the G4 Rates Markets

Reflecting increasing divergence in business cycles and monetary policy stances, we maintain a relative preference for Bunds and JGBs over US Treasuries. We also have a relative …read more

Source:: FX Street