Goldman Sachs Exec on Capital Markets Activity and Fed Policy

Capital Markets Activity Outlook

• 🚀 Goldman Sachs is observing significant "bursts of activity" across its capital markets franchises.
• 💡 In investment-grade credit, activity has been consistent all year, with US and Euro markets near record highs.
• 📈 The Euro market is seeing a higher historical share of global financing, attracting US corporates seeking lower yields.
• 🌟 Both leverage finance and US IPOs are experiencing robust activity, indicating an open market environment.
• ✅ The current market sentiment suggests a path of least resistance towards continued robust activity.

Issuer Expectations on Fed Cuts

• ⚠️ Issuers are not primarily counting on Fed cuts this year, aligning more with market pricing of a couple of cuts.
• 📊 Elevated term yields in the US Treasury market, with a term premium of 80-85 basis points, are seen as a "real tax" on borrowing costs for corporations and government debt.
• 📉 This term premium is influenced by government debt supply and potential shifts in Fed policy.

Fed Chair Uncertainty and Market Impact

• 💬 The market reacted significantly to speculation about a potential Fed chair change, showing a shift in the yield curve.
• 📈 Term premium has risen, with an estimated 20-25 basis points attributed to noise around potential Fed chair changes and increased FOMC dissent.
• ⚠️ Increased dissent within the FOMC is expected to become the "new norm", leading to greater uncertainty and volatility.
• 🎢 This uncertainty can translate into an incremental risk premium in the markets.

European vs. US Central Bank Dissent

• 🇪🇺 Unlike the US, the ECB tends to see more dissenting voices, which is already a wired market norm in Europe.
• 🇺🇸 The US market may not yet be fully accustomed to this level of dissent, potentially leading to priced-in volatility.

Market Reaction to Japan and Financing Window

• 🇯🇵 Markets appear to have dodged a bullet regarding post-election reactions in Japan, with business as usual observed.
• 💰 Corporate issuers are currently in a "very good financing window", with credit spreads at the bottom 1% over the last two decades.
• ⏳ Given the potential for rising volatility and risk premium, it is considered a good time to continue financing and come to market.