Episode summary
Why Global Bond Yields Are Surging
Exchanges (Goldman Sachs)
· · 27 min · Hosts: Tucker York, Alison Mass, FX de Mallmann · Guests: George Cole
Summary
Global government bond yields have climbed to multi-decade highs across the US, UK, Germany, and Japan, and George Cole argues the move is too broad to be explained by one country alone. He says the sell-off is running across the curve, from long-dated bonds to policy-rate expectations, which points to a mix of fundamental forces rather than a single technical disruption.
Cole says low volatility is an important clue: despite the rise in yields, the market has moved in an orderly way, making it harder to dismiss the sell-off as noise. He points to overlapping drivers, including persistent fiscal deficits, heavy borrowing tied to AI capex, resilient growth, and a renewed energy shock that is pressuring inflation expectations and central bank pricing.
He argues that higher yields also reflect a global competition for savings. Governments need to finance deficits and defense spending while companies borrow to fund investment, and that imbalance mechanically pushes rates higher. Looking ahead, Cole says lower energy prices or a slowdown in the AI borrowing cycle could ease pressure, and he thinks five-year bonds may regain hedge value over a two- to four-year horizon if yields can move lower.
Key takeaways
- George Cole says the bond sell-off is broad-based across the US, UK, Germany, and Japan, not just a US story.
- Low realized and implied volatility make it harder to explain the move as a purely technical dislocation, according to Cole.
- Cole says government deficits, AI-related borrowing, and defense spending are competing for the same pool of global savings.
- He says the latest leg higher in yields is being driven by energy prices and the market repricing central bank hikes.
- Cole thinks five-year bonds could become a better portfolio hedge over a two- to four-year horizon if inflation and AI capex pressures ease.
Notable quotes
“there is an overlapping set of fundamentals here that are driving yields up”
“we've got a situation where the private sector is undertaking a very significant uplift of capex”
“it may start to be a little bit more asymmetric for the for the 5-year yield part of the curve where yields can move lower”
How the episode opens
Bond yields around the world have been rising for most of this year and have recently surged. So are interest rates settling into a new higher normal or is this a temporary dislocation? I'm Allison Nathan and this is Goldman Sachs Exchanges to understand why bond markets are under pressure giving rise to higher bond yields.
I'm sitting down with my colleague George Cole who leads European rate strategy for Goldman Sachs Research. George joins me today from London. George, welcome to the program.
Thanks very much. So George, it's easy to look at the headlines and think this is just a US story. We've obviously seen concern about inflation here in the US.
There's concern about spending levels, but this bond selloff is really happening everywhere. Is that right? Yeah.
No, that's right. So, as you said, I sit over here in London. I look primarily at the European uh bond markets uh in Germany, in the UK.
uh but when we look at the US, when we look at markets like Japan, we would really think of these four as the as the major government bond markets uh the the the major benchmarks for the for the global economy and global fixed income markets. And we're seeing all of these markets move higher in yield. We're at multi-deade highs as we, you know, read about in the financial press.
We're seeing yields pressing higher across all of these economies. And it doesn't look obvious that there's a single driver or a single market that is really leading the sell-off or or driving it over a long period of time. From day to day, one move might be bigger in one of those economies, but really over the last few months, all of those markets have been pushing yields higher.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- global bond yields
- fiscal deficits and borrowing
- ai capex demand
- low volatility in bond markets
- energy-price shock
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “Why Global Bond Yields Are Surging” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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