Time to buy bonds?

Market Context & Treasury Yields

• The 10-year Treasury yield remains at the same level it held six months ago (October), despite a significant shift in the macroeconomic environment.
• Yield composition has shifted from a pre-April mix of 2% inflation and 2% growth to a current projection of roughly 3% inflation and 1% growth.
• Yields remain elevated because aggressive tariff announcements since "Liberation Day" (April 2nd) have constrained the Federal Reserve's ability to cut rates due to their dual mandate on inflation and employment.
• Technical factors, including increased Treasury supply and shifting demand dynamics, are contributing to yield stability despite lower expected growth.

Credit Market Analysis

• Credit spreads widened significantly following April 2nd but have since retraced approximately 70% of that move.
• Investment Grade (IG) spreads currently sit at 100 basis points, compared to a pre-tariff low of 90 and recessionary levels historically observed between 175 and 200 basis points.
• Goldman Sachs does not view current credit spreads as pricing in a recession as the modal case, noting the market has not fully priced in downside risks.
• The April 9th administration announcement of a 90-day negotiation reprieve contributed to the partial recovery in credit spreads.

Investment Strategy & Allocations

• Goldman Sachs Asset Management has increased duration in its portfolio over the past two weeks, citing Treasury yields' positive total returns throughout the year despite yield stagnation.
• Bonds have generated positive total returns year-to-date, whereas equities have recorded negative returns.
• The firm maintains that the U.S. retains its unique status as a global safe haven asset, citing unmatched liquidity, depth, and rule-based stability compared to other global alternatives.
• Investment Grade credit is currently favored over High Yield, specifically within synthetic instruments like Investment Grade CDX and credit default swaps on indices, which have widened and not fully recovered.
• Structured credit opportunities exist but are characterized as highly idiosyncratic and deal-specific, requiring intensive due diligence.

Sector-Specific Observations

• Corporate guidance divergence is evident in the travel sector, with airlines pulling forward guidance while cruise lines remain optimistic.
• Forward-looking statements suggest that while the probability of a recession has increased, the market's reaction to tariff policies remains the primary driver for near-term asset allocation decisions.