Goldman Sachs sees bonds regaining appeal after yield surge

what happened

Reuters reports that the sharp rise in bond yields may have gone too far and happened too quickly. Yields across global markets reached multi-year highs in recent weeks, driven by expectations of higher inflation, more hawkish central banks, fiscal concerns and stronger competition for capital linked to the AI infrastructure buildout.

Goldman Sachs strategists believe the trend may be shifting. In a note, the bank said bonds were becoming more attractive for investors with longer horizons amid expectations for inflation to normalize, energy prices to peak and central banks to take a more dovish stance. The team moved to an overweight position in bonds over 12 months, while retaining a neutral view over three months.

The near-term rates outlook remains complicated by tensions in the Middle East, uncertainty surrounding the US midterm elections and the AI capital-spending boom. Goldman Sachs also upgraded equities to overweight for the three-month horizon, pointing to supportive earnings growth and the possibility of valuation expansion if rates ease.

why it matters

The assessment points to a potential rotation toward bonds after the recent yield surge, although short-term risks remain significant. Equities retain support from earnings growth and lower valuations following the decline in valuations and positioning since the summer.

instruments