Traders are starting to price in US election
risks to Treasury and volatility markets, according to Goldman
Sachs strategists who continue to recommend shorting 10-year
Treasuries versus German counterparts. Citi took profit on a
long breakevens position, while BMO looks to enter the trade
should rates fall to more favorable buying levels. For a roundup
of views on European rates, click here.

* Bank of America (Mark Cabana, Meghan Swiber and others, Oct.
11 report)
** Maintains dip-buying stance and real steepeners bias, favors
adding duration with 10-year trading between 4% to 4.25%; five-
year the preferred tenor
** “We prefer to allocate to longs at the belly vs back end of
the curve as election remains a risk” while “We recommend
holding off on adding to duration further out the curve until we
pass peak election risk”

* Barclays (Anshul Pradhan and others, Oct. 10 report)
** Keeps view to pay 5y5y USD versus EUR rates (via OIS vs.
ESTR, entered at 80bp): “US far forward rates still do not
appear to be pricing in enough term premium, and EUR far
forwards should reflect the risk of a low neutral rate”
** “All in all, the data argue against the need for a material
easing beyond some further re-calibration, and Fedspeak implies
risks are skewed towards over-easing”

* BMO Capital Markets (Ian Lyngen and Vail Hartman, Oct. 11
report)
** Stays in 2s10s steepener (entered at 9.8bp, currently around
14bp) but were stopped out of 2s30s steepener
** Looks to enter long 10-year breakevens in the event they fall
below 223bp, the close on Oct. 4 jobs report day
** “With CPI and PPI in hand, our read is that the September
inflation profile has solidified expectations for a 25 bp rate
cut next month” while “there is a very high bar for the
remaining pre-Fed data to truly put a pause on the table for the
November FOMC meeting”

* Citi (Jabaz Mathai and others, Oct. 11 report)
** Takes profit on long 10-year breakeven position around
2.342%, writing “The Treasury curve is now back to levels that
are more consistent with a realistic assessment of benign/soft
landing vs. hard landing probabilities for the economy”
** Upside data surprises like September CPI “raise the
likelihood of a skip this year if payrolls don’t deteriorate
into year-end. The Fed will in all likelihood go 25bp in
November, as monetary policy is still quite some distance away
from neutral”

* Goldman Sachs (William Marshall and others, Oct. 11 report)
** Maintains recommendation to be short 10-year Treasuries
versus bunds, “which we think is positioned well for our
baseline but can also benefit if the market presses on election-
related risks (either fiscal or tariff-related)”
** Traders and vol market are increasingly focused on US
election with most key data risks behind us (save for October
jobs report)
** “Shorter expiry vol on longer term yields has richened on the
surface since the start of the month, likely reflecting a
combination of uncertainty shifting away from the very near-term
Fed path towards terminal rate considerations, as well as a
greater focus on post-election risks”