As financial markets brace for the Federal Reserve’s next policy move, Goldman Sachs’ head of global banking and markets strategy, Josh Schiffrin, has made it clear where he sees value. Speaking on the firm’s “The Markets” podcast last Friday, Schiffrin named five-year U.S. Treasurys as his “favorite trade” across all asset classes in anticipation of an upcoming Fed rate cut.
Why Five-Year Treasurys?
When asked by Mike Washington, Goldman’s managing director of equities sales trading, to highlight his preferred trade idea, Schiffrin pointed directly to the middle of the Treasury curve. He described five-year notes in the 3.75% to 4% yield range as both “attractive” in valuation and defensive in nature.
“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.”
That positioning reflects a balancing act between yield opportunity and downside protection. With yields hovering around 3.83% on Monday morning, five-year notes are already lower than the 4.38% level seen at the start of 2025, making them appealing as rate expectations shift.
A Market Betting on Rate Cuts
Schiffrin’s call comes at a pivotal moment for investors. The Federal Reserve has held interest rates steady for five consecutive meetings, but a slowdown in the U.S. labor market and mounting political pressure suggest that monetary easing could be imminent.
The U.S. economy added just 73,000 jobs in July, falling short of the 106,000 forecast. This weaker labor data adds to signs that the red-hot job market is cooling a trend that gives the Fed more room to pivot away from its restrictive stance.
“I kind of feel like it’s 25 basis points in September with a very high likelihood,” Schiffrin said, noting that he views the chance of no action as even less likely than a more aggressive 50 basis point cut.
That outlook aligns closely with Wall Street consensus. A recent Reuters poll of 110 economists found that 61% expect the Fed to cut rates by 25 basis points, bringing the federal funds target range down to 4.00% – 4.25% at its September 17 meeting. If delivered, it would mark the first rate reduction of the year.
The Political and Policy Backdrop
While most market participants focus on inflation data and labor trends, politics continues to play a role. President Donald Trump has repeatedly pressed Fed Chair Jerome Powell to begin cutting rates, arguing that monetary tightening has held back U.S. growth.
So far, Powell has resisted those calls, pointing to ongoing risks from trade tariffs, inflation that continues to run above the Fed’s 2% target, and a still-healthy level of unemployment as justification for caution.
Yet with global growth slowing, Treasury yields falling, and financial conditions tightening in credit markets, pressure on the Fed to act is building. Investors now see September as a turning point.
Why Shorter-Duration Bonds Appeal Now
For Schiffrin, shorter-term Treasurys like the five-year note offer a compelling mix of yield, liquidity, and protection against volatility. Unlike longer-dated bonds, which are more sensitive to interest rate swings, five-year maturities allow investors to capture attractive yields today while staying flexible in case of additional policy changes.
This strategy also reflects growing uncertainty in equity and risk markets. With stock valuations stretched and corporate earnings facing pressure from slower growth, Treasurys remain a safe harbor. “They have good characteristics to protect, should there be risk market weakness,” Schiffrin emphasized.
Investor Takeaway
Goldman Sachs’ top strategist is sending a clear signal: in the current environment of slowing growth, potential Fed easing, and heightened market volatility, five-year Treasurys are a sweet spot.
Whether the Fed cuts by 25 or 50 basis points next month, yields are expected to trend lower, which would lift the price of existing Treasurys. For investors seeking both income and downside protection, positioning in the middle of the curve could be a defensive yet profitable move in the months ahead.
As September’s Fed meeting approaches, all eyes will be on Powell and his colleagues. But for Schiffrin and increasingly for Wall Street the bet is already placed.
