Bloomberg News

Goldman Urges Selling U.S. 10-Year Futures, Citing Industry

January 23, 2012

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Jan. 23 (Bloomberg) -- Goldman Sachs Group Inc. recommended selling Treasury 10-year futures expiring in March, citing an “improvement in industrial activity.”

Investors should bet the 10-year note future drops to 126 and exit the trade if the price increases to 132, Francesco Garzarelli, co-head of fixed-income strategy in London, wrote in an e-mailed message today. The yield on the benchmark 10-year Treasury note may advance to 2.25 percent to 2.50 percent, Garzarelli wrote.

“At this stage of the cycle, growth expectations are in the driver’s seat,” Garzarelli wrote in the note. “Bond yields are lagging the improvement in industrial activity seen since late 2011. Ten-year government bond yields are currently trading too low, to the tune of 50 to 75 basis points.”

The futures contract slipped 1/4 to 130 1/32 at 9:17 a.m. New York time, while the yield on the cash 10-year note climbed three basis points, or 0.03 percentage point, to 2.06 percent.

Treasuries are off to their worst start in nine years on signs the U.S. economy is strengthening and Europe is moving closer to resolving its sovereign-debt crisis.

Yields on benchmark 10-year notes advanced 16 basis points last week in the biggest weekly increase since the five days ended Dec. 23.

Industrial Output

Total industrial production in the U.S., which includes factories, mines and utilities, rose 0.4 percent in December, the Federal Reserve reported last week.

The Federal Open Market Committee statement on Jan. 25 may disappoint investors looking for a policy “easing event,” Garzarelli wrote.

The refuge appeal of Treasuries fell today as Greek officials held debt-swap talks and European bond sales had increased demand.

European Union finance ministers are gathering in Brussels to discuss new budget rules, a financial firewall to protect indebted states and a Greek debt swap, with EU leaders racing to cobble together a firm rescue response in the coming weeks. Cash-strapped Greece and private bondholders said they had made progress in talks over the weekend in Athens.

“The most likely thing to happen is that everybody’s still in it, including Greece” at the end of the year, Jim O’Neill, chairman of Goldman Sachs Asset Management, said in a Jan. 20 interview with Charlie Rose, referring to the euro and its 17 member nations. “The costs of exit are so unknown.”

--With assistance from Cordell Eddings in New York. Editors: Dennis Fitzgerald, Kenneth Pringle

To contact the reporters on this story: Paul Dobson in London at; Liz Capo McCormick in New York at

To contact the editors responsible for this story: Daniel Tilles at; Dave Liedtka at

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