This trade is where big investors are hiding out amid choppy markets, Goldman Sachs says

cnbc.com:

Investors have piled into short-term U.S. government bonds in a bid to wait out the upheaval caused by a blowout in longer-term yields, according to a Goldman Sachs executive.

An auction this week of 52-week Treasury bills at a 5.19% rate was 3.2 times oversubscribed, its highest demand of the year, said Lindsay Rosner, head of multi-sector investing at Goldman Sachs asset and wealth management.

«They're saying, 'I'm now being afforded a lot more yield in the very front end of the curve in government paper',» Rosner told CNBC in a phone interview, referring to 1-year T-bills. «That is really where you're seeing investors flock.»

The trade is a key way that institutions and wealthy investors are adjusting to the surge in long-term interest rates that have roiled markets lately. The 10-year Treasury yield has been climbing for weeks, reaching a 16-year high of 4.89% Friday after the September jobs report showed that employers were still hiring aggressively. Investors poured more than $1 trillion into new T-bills last quarter, according to Bloomberg.

The playbook, according to Rosner, takes advantage of the presumption that interest rates will be higher for longer than markets had expected earlier this year. If that sentiment holds true, longer-duration Treasuries like the 10-year should offer better yields next year as the yield curve steepens, she said.

«You get to collect a 5% coupon for the next year,» she said. «Then, in a year, you may have opportunities [in longer-duration Treasuries] at greater than 5% in government securities or potentially in [corporate bonds] that are now properly priced.

»You could then get a double-digit yield, but be confident about valuation, unlike now," she added.

While 10-year Treasuries