Market sentiment continues to climb, buoyed by anticipation of US-Iran ceasefire negotiations, but Goldman Sachs warns that interest rate volatility remains the primary threat to global risk assets, suggesting it is premature to declare an "all-clear" signal.

Rich Privorotsky, head of Goldman Sachs' One-Delta business, noted in a recent client communication that unilateral signals from the US regarding ceasefire talks have shifted market sentiment away from escalation fears. This shift carries some credibility, particularly following Vice President Vance's involvement. According to an Axios report, the US and several regional mediators are discussing the possibility of high-level peace talks with Iran as early as this Thursday, though they are still awaiting a response from Tehran. Prediction markets currently indicate approximately a 50% probability of a ceasefire agreement being reached before the end of April.

Privorotsky expressed his personal view that "it is too early to celebrate," as initial rounds of negotiation are unlikely to yield lasting results. Concurrently, significant pressure is evident in interest rate markets: the US 2-year Treasury yield has risen approximately 50 basis points over roughly three weeks, marking its largest surge since the Silicon Valley Bank crisis. The latest US Treasury auction showed weak demand, with the bid-to-cover ratio hitting its lowest since May 2024 and the tail spread reaching its widest since March 2023.

**Three Camps: Significant Divergence in Views on Negotiation Prospects** Privorotsky clearly segmented current client positions into three distinct camps: Camp One believes the US's current actions are merely a stalling tactic and a performative gesture to buy time for potential military escalation before the weekend. They advocate selling on rallies, arguing that "you can't move molecules (i.e., physical energy flows) with words." Camp Two is convinced that the current negotiation signals represent genuine progress towards a peace framework and that the situation is evolving towards de-escalation. Camp Three holds a mixed view, perceiving that military deployments continue to advance alongside negotiations, representing a "signaling + pressure" dual strategy. Privorotsky personally aligns with the third camp: markets were previously overly pessimistic about the possibility of talks commencing, but the initial round of negotiations is highly unlikely to yield substantive results, given the vast difference in initial demands between the parties, requiring gradual磨合 (adjustment/alignment). Regarding the Strait of Hormuz, there are indications that Iran is permitting some conditional transit, effectively charging a "toll" for shipping flow. This alleviates immediate tail risks to some extent, but this arrangement is structurally unsustainable and keeps leverage firmly in Iran's hands.

**Interest Rate Volatility is the Core Risk** Privorotsky explicitly stated that the market's primary concern is not equities, but interest rate volatility. Major central banks like the ECB maintain a hawkish bias, while fiscal pressures continue to accumulate. Governments, already fiscally constrained, face rising defense expenditures and potential subsidy pressures stemming from high energy prices. He described this combination as "poison" for bonds. The level and speed of interest rate volatility are unsustainable for risk assets. He emphasized that rates must stabilize for stock markets to function properly. Within this context, he believes gold is in the macro environment where it should perform well, and recent selling in gold may present a better entry point. Additionally, markets should closely monitor the upcoming US 5-year Treasury auction and the performance of longer-dated German bonds.

**Tactical View: Prudent to Apply Moderate Brakes in the Short Term** Regarding sentiment and positioning, a significant short-covering rally occurred on Monday following a tweet by former President Trump, but overall positioning and sentiment remain subdued. The VIX remains elevated around 26, the European Volatility Index (V2X) is also high, and significant risk premium remains embedded in the markets. Privorotsky pointed out that the Euro Stoxx 50 index has rebounded about 5% from its intraday lows; therefore, from a tactical perspective, it is reasonable to moderately apply the brakes heading into the weekend. If talks are formally confirmed to start tomorrow, it would be worth adjusting positions back to neutral. The base case scenario is that the first round of talks is highly likely to yield no substantive progress, but downside risks may have narrowed compared to last week as the market enters a de-escalation mode. However, the risk of miscalculation remains high. He expects the White House to re-engage in the negotiation process early next week, which would represent a path for the market to gradually move towards de-escalation.

**Structural Perspective: AI Remains Key Theme, Asia Favored Over US/Europe** From a structural standpoint, Privorotsky believes AI remains the dominant theme, with winners concentrated in the hardware sector, primarily located in Asia. He agrees with the direction of Jensen Huang's views on AGI, but acknowledges that valuation compression for growth and tech stocks is real, and the pool of leading stocks is narrowing rather than expanding. Regarding regional allocation, he favors Asian longs (South Korea, Taiwan, Japan), hedged with European positions, while maintaining an overall cautious stance on the US. Weakness in the software sector is expected to persist, and he advises closely watching for a downside breakout in the IGV (software ETF), which would have systemic implications for broader valuation multiples. Financial stocks are unattractive due to credit risk and yield curve factors; healthcare stocks are attractive but require supportive interest rates. Among emerging markets, he identifies Brazil as a standout candidate for a structural long position.