Goldman Sachs' banking strategy head reveals his favorite trade ahead of a potential Fed rate cut
The chief strategy officer for global banking and markets echoed predictions of a rate cut in September.
A Reuters poll shows 61% of economists expect a 25 basis point rate cut next month.
Goldman Sachs' chief strategy officer for global banking and markets named five-year Treasurys when asked for his "favorite trade" ahead of potential interest rate cuts next month.
In a Friday episode of the investment bank's "The Markets" podcast, Josh Schiffrin said that short-dated government bonds were his preferred option when Mike Washington, managing director of equities sales trading, asked for his "favorite trade" across "all asset classes."
"I think of valuations with five-year sector Treasurys in the 3.75 to 4% zone as attractive," Schiffrin said.
"I also think they have good characteristics to protect, should there be risk market weakness," he added.
The five-year US Treasury yield rose to 3.83% at 8:45 a.m. ET on Monday, down from 4.38% at the start of the year.
Schiffrin said he favored shorter-term Treasury bills because he expected the Federal Reserve to ease monetary policy next month and the cooling job market. The US added 73,000 jobs in July, below predictions of 106,000.
Schiffrin said the Fed is "extremely likely" to ease in September.
"I kind of feel like it's 25 basis points in September with a very high likelihood," he said, adding that keeping rates unchanged was even less likely than a reduction of 50 basis points.
Reuters polled 110 economists and found that 61% expect interest rates to be cut by 25 basis points to between 4 and 4.25% at the next Fed meeting on September 17. That would be the first cut this year. Most of the remaining respondents thought rates would be held at the next Fed meeting.
President Donald Trump has publicly pressured Fed Chair Jerome Powell into cutting rates for months, but there have been no changes at the past five Fed meets, including most recently at the end of July.
Powell has cited uncertainty regarding Trump's tariffs, inflation exceeding the Fed's target of 2%, and relatively low unemployment as reasons to hold rates.
Correction: August 18, 2025 — A quote from Josh Schiffrin was corrected. He said he thinks of valuations with five-year sector Treasurys in "the 3.75 to 4% zone as attractive," not in "the 3 and 3.25 to 4% zone."
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