Priced For Surprise

Research evidence excerpt

Priced For Surprise

Goldman Sachs Global Rates Trader

moved to the cheap side of fair in the recent selloff, but are still not so stretched as

to argue for correction without a macro catalyst that arrests inflation risk or

undermines the perception of growth resilience—both of which we continue to think

would exert greater effect on shorter maturities.

Exhibit 1: If current pricing for the July FOMC holds, we Exhibit 2: June’s FOMC prompted a strongly hawkish

estimate it would be the largest non-cut “surprise” in repricing

recent decades Change in UST yields on 17Jun26 FOMC

Estimated non-cut meeting day “surprise” versus market pricing

bp Realized meeting day surprise (hold) bp bp bp

Realized meeting day surprise (hike)

20 Surprise if July hold (assuming current pricing) 20 20 20

Surprise if July 25bp hike (assuming current pricing)

15 15 15 15

10 10 10 10

5 5 5 5

0 0 0 0

-5 -5 -5 -5

-10 -10

2y 5y 10y 30y 5y 10y 30y 5y 10y 30y

-15 -15 Nominal Yields Real Yields Breakevens

Feb-94 Feb-98 Sep-01 Aug-05 Apr-09 May-13 May-17 Mar-21 Mar-25

“Surprise” measured as meeting day change in weighted first or 2nd fed funds Source: Bloomberg, Goldman Sachs Global Investment Research

futures prior to 2002, 1m OIS from 2002 to present

Source: Goldman Sachs FICC and Equities, Bloomberg, Goldman Sachs Global

Investment Research

n Volatility sticky through the latest energy surge. While yields reached new

conflict-highs amidst the reacceleration in oil prices, implied volatility has so far

been comparatively stable through the latest selloff, ticking up only slightly (Exhibit

3). The first phase of the conflict had seen a sharp increase in vol alongside a

repricing of the rates path, which offered beneficial entry points to vol-selling

strategies even before oil prices peaked.