Show Notes
Government bond yields have surged to multi-decade highs across the US, UK, Germany, and Japan. George Cole, head of European Rates Strategy for Goldman Sachs Research, says there is a range of factors behind the bond sell-off—from swelling fiscal deficits and borrowing tied to investment in artificial intelligence (AI) to resilient economic growth and an energy-price shock. In this episode of Goldman Sachs Exchanges, he also explains what could bring yields back down.
Key takeaways:
Low volatility signals a fundamental move: While global yields have been climbing, bond market volatility has been notably low. Cole says this makes it harder to dismiss the sell-off as technical noise and points instead to fundamentally driven factors.
Everyone is borrowing from the same pool of savings: Governments raising money for deficits and defense spending are now competing with companies borrowing heavily to fund AI buildouts, Cole says. With more borrowers chasing the same pool of global savings, rates get pushed up almost mechanically, regardless of what any single government does.
Bonds could become a better hedge: Over the next few years, Cole says five-year bond yields could have more room to decline, making those securities a better hedge for portfolios.
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