---
title: "Mike Mitchell on inflation and fiscal policy driving US Treasuries on Goldman Sachs trading floor; Back-end yields rise on fiscal concerns"
sdDatePublished: "2026-08-15T11:23:00Z"
source: "https://www.goldmansachs.com/pdfs/insights/the-markets/how-inflation-and-fiscal-policy-are-driving-us-treasury-markets/transcript.pdf"
topics:
  - name: "economy, business and finance"
    identifier: "medtop:04000000"
  - name: "financial service"
    identifier: "medtop:20001370"
locations:
  - "United States"
---


Mike Mitchell on inflation and fiscal policy driving US Treasuries on Goldman Sachs trading floor; Back-end yields rise on fiscal concerns

How Inflation and Fiscal Policy Are Driving US Treasury Markets

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Goldman Sachs The Markets
How Inflation and Fiscal Policy Are Driving Treasury
Markets
Mike Mitchell, Head of US Treasuries and Inflation
Trading, Global Banking & Markets
Mike Washington, Host, Co-Head of New York &
International High Touch Sales Trading, Global
Banking & Markets
Date of Recording: August 12, 2026
Mike Washington: This is The Markets. I'm Mike
Washington. Today is Wednesday, August 12th, and I'm
on the Goldman Sachs trading floor, joined by Mike
Mitchell. Mike is the head of US Treasuries and Inflation
Trading within Global Banking & Markets. Mike, it's
great to have you.
Mike Mitchell: Thank you for having me.
Mike Washington: So, we're through the heart of
earnings season, and I can tell you from the equities
floor, there's been a material shift from the micro into
macro. We had a CPI print this morning. To me, it looked
like it was right down the fairway. What did you take
away from the print?
Mike Mitchell: Yeah. The report was roughly down the
middle. 21.5 basis points for core CPI, but the read-
through, I think to core PCE was a little softer than that.
Specifically the software category has a bigger weighting
in PCE than it does in CPI. That category was softer

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today. And so most forecasters were revising their
forecasts lower off the back of today's reading.
I think for the Fed, it should give them some comfort.
They still have to get through a PPI report tomorrow
without a big surprise to the high side. They have to get
through another month of inflation data in September,
and that's all ahead of the next meeting in September.
So the market reaction today I thought was appropriate.
We had a little bit of a rally in the bond market. We had a
couple of basis points shaved off of the September
meeting, which is now pricing nine basis points. Given
that you still have to live through several other inflation
readings before you can be confident about that
September meeting, that felt about right to me.
Mike Washington: Yes, we have to go through a couple
inflation prints, but I think we also got to go through
some employment prints, right?
If you think about NFP last week, NFP came in much
weaker. How do you sort of think about this dual
mandate in the sense that we have been focused on
inflation, but do we now need to think about employment
and maybe hiking isn't prudent at this time?
Mike Mitchell: Of course, there's a dual mandate. We
had a soft report on the employment side last Friday,
negative payroll growth for the first time in a little while.
If you look at a three-month or a twelve-month average
rate of payroll growth both those numbers are in the
context of sort of 20,000 or 30,000 jobs a month. So
reasonably tepid job growth. But what I would also say is

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that changes in immigration policy as well as an aging
population, demographic changes, you don't really need
much in the way of job growth to maintain a steady
unemployment rate.
And if you look over the last 12 months, the
unemployment rate has been almost perfectly
unchanged. And so really I would say the job market is
sort of not that interesting. It is not booming. Equally, it's
not flashing warning signs about recession. It's not the
focus of investors. It's not the focus of the Fed.
It was a soft report. I don't think that will be a significant
driver of the upcoming meeting in September. And I don't
think the labor market is the story at all. It's all about
the inflation data.
Mike Washington: Okay. So it remains inflation is the
focus. That's the monetary policy side.
When you think about the fiscal policy side, there's a lot
going on there too. What are you focused on from a fiscal
perspective, and how is it impacting Treasury markets
right now?
Mike Mitchell: Yeah, the fiscal side, it has a lot of focus.
We've been on a problematic fiscal path for some time,
and we're likely to be for the foreseeable future.
And it's not just this country, it's a global phenomenon.
It's been driving increasing term premium in the bond
market. It's my view that it will continue to drive further
increases in term premium in the coming years. It's an
issue that's not going away. I guess there's a question of
like will the Fed's response be something that could give
comfort to longer term yields?

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I think we saw in the aftermath of the July meeting,
back-end Treasuries trade badly. That was in response to
a more dovish press conference than the market
expected. Chair Warsh also made some comments about
longer term yield implying perhaps higher longer-term
yields could be a substitute for raises in the policy rate.
The back end of the bond market didn't like that. So, I
think you could see a shift from the central bank to a
more hawkish reaction function that gave the back end
some comfort. But that would be a little the opposite of
what we saw in July.
Mike Washington: In addition to CPI data today, we also
got a 10-year Treasury auction, which was actually the
highest yielding 10-year Treasury auction since 2007. We
get 30-year auction tomorrow. At these levels, how are
you thinking about the supply dynamic as it relates to
the US Treasury trade?
Mike Mitchell: Yeah. So the 10-year auction today, it
was reasonably smoothly digested despite the high yield
level that we have prevailing in the marketplace
generally.
I think the smooth digestion today was probably helped
by the CPI data being a little bit on the softer side and I
think we could see a similar story play out tomorrow with
the 30 year auction assuming we don't get a hot PPI print
tomorrow. I think the comforting inflation data brings
buyers off of the sidelines in the bond market, gives them
comfort owning longer term duration.
So I, you know, I would expect base cases, we see a
similar story tomorrow. But I think generally it is

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certainly true that the amount of supply in the
Treasuries market is very heavy. It has weighed on the
bond market over a longer period of time. It has driven
higher term premium in the bond market too.
And these will be ongoing themes. The market's very
focused on the Treasury's need to increase auction sizes
further in the coming years. It's clear that they will need
to. We think when Treasury does that, it'll be focused,
almost exclusively on sort of the front end and belly of
the curve, uh, maybe out to the tenure10-year point.
We think they'll leave long in auction sizes as they are
unchanged.
Mike Washington: When you talk about issuance and
supply, the other thing that I think about as a key
feature of 2026 has been supply in obviously Treasuries,
but also in credit markets. As you think about tapping
into debt markets to now build out AI as a thematic, how
have the issuance that we've seen across credit spaces
played into how you think about your trades in
Treasuries?
Mike Mitchell: Yeah. There's clearly been an impact
from the corporate supply backdrop on the Treasuries
market too. The amount of supply that's come to market
to support the AI infrastructure build-out has been quite
impressive. We think it'll be upwards of $250 billion this
year, perhaps as much as $400 billion next year.
And it's pointing in the same direction as the heavy
Treasury supply, in the same direction as the longer-
term fiscal issues that we already talked about. And so

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it's another factor important to the Treasuries market too
and pushing in the same direction as these other factors.
Mike Washington: Real yields are elevated.
How are you thinking about real yields from the
perspective of maybe the short-term investor and risks
that are inherently that the short-term investor will face,
whether it's a hike in September or by the end of-- year-
end, and then you overlay that with a long-term investor
who looks at this and is like, "Hmm, some of these rates
actually seem-- screen pretty attractive," maybe relative
to equities or relative to other asset classes?
Mike Mitchell: Yeah. I think you framed the question
well. You know, I think there's a short horizon, and
there's a long horizon. Investors with a short horizon,
there are clearly headwinds and things to be concerned
about. The market is very focused on the Fed. Will they
raise interest rates? If so, by how much?
And that, that's probably the biggest market focus
currently. We talked about the fiscal outlook, we talked
about the supply backdrop. These are all things that, in
the near term, you know, make it feel hard to point to a
catalyst for a big re-rating richer in longer term yields.
But with a long horizon, look at the market. You have
real yields in the 10 sector that are almost 2.5%, in the
20-year sector more like 3%. If you look back at the TIPS
market over a very long period of time, you know, those
are historically elevated real yields.
If you go back to the global financial crisis between then
and now, you really don't see any periods where those
sorts of real yields were sustained for any meaningful

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period of time. If you go back even further, before the
GFC, you know, sure, the very early 2000s or the very
late 1990s you had somewhat higher real yields for
periods of time.
But I think, you know, the TIPS product at that stage
was in its infancy. You probably had a illiquidity
discount that was contributing to those yield levels. And
so, we think that would suggest that there is value in
these levels. The other thing I would note is that in a
portfolio that has riskier assets too, I do think the
treasuries provide a diversification benefit.
Maybe it didn't feel that way over the last couple of years
when inflation has been a problem, and that can create a
pro-correlation at times between treasuries and other
riskier assets. But I think if you have a recession
scenario where there's a growth shock, I think very
clearly treasuries will provide a diversification benefit.
They'll perform well and sort of temper overall losses in a
portfolio. So, for a product where you can earn what's
now a pretty decent return and get that diversification or
insurance benefit in times of stress, feels like a pretty
compelling investment proposition.
Mike Washington: The treasury market in general
sounds compelling right now.
If you had to package it up for us, what's the trade?
Mike Mitchell: The trade I like is the steepener. You
know, I think that the front end and the belly of the
curve, I think they fully price any likely action from the
Federal Reserve. If not, you price, you know, a little bit
extra. So I think that's an okay place to anchor along.

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The back end, as we discussed, I think it will continue to
experience rising term premium over time. It has longer
term headwinds that we've discussed that, I think will
continue to be present. And so I think that, you know,
the big bang for the steepener, of course, is a recession
scenario.
It's not that I think that is imminent or likely in the near
term. So you get some tail that could come at some
stage. And I think the grind is in your favor you know,
anyway in the interim.
Mike Washington: All right, Mike, we talked about the
inflation data points this week. What are you looking at
next week?
Mike Mitchell: Yeah, PPI, as you said, very important
still. We'll get more important source data for the PCE
print. Notably the portfolio management fees, you know,
go a long way to driving a wedge between PCE and CPI,
and so we'll be focused on that. We have retail sales data
on Friday.
Next week though, we're focused on the Fed minutes
from the July meeting. You know, we're going to try to
understand what the temperature in the room was, try to
see if there's any read-through to how the committee
might be thinking about the dec