Forex Flash: Will fed surprise markets with rate changes? – Goldman Sachs

FXstreet.com (Barcelona) - According to the Economics Research Team at Goldman Sachs, “The real risk in present day for 10-year US treasuries is less from a 1994-style move in short rates, and more from an increase in long-dated yields. However, the sea-change in the Fed’s operation and communication strategies since 1994 makes us more confident that the Fed will not intentionally surprise markets, and it has more tools to moderate the pace of any unwarranted increases.”

Differences in exposures between 2012 and 1994 also point to a more reassuring conclusion: a larger share of the fixed income market seems to be in the hands of unleveraged market participants; leveraged holders (US banks) have a significantly smaller share of USTs; and bank leverage has declined.