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1、HIGH BOND YIELDS:HERE TO STAY?ISSUE 135|February 5,2025|4:50 PM EST%Q%Global Macro ResearchInvestors should consider this report as only a single factor in making their investment decision.For Reg AC certification and other important disclosures,see the Disclosure Appendix,or go to Goldman Sachs Gro

2、up,Inc.Despit e t he st art of l ong-await ed cent ral bank easing cycl es,G10 bond yiel ds have reset higher in recent mont hs,l ed by t he US.What account s for t his unusual behavior,and wil l yiel ds remain el evat ed amid t ariff and broader economic devel opment s?PGI M Fixed I ncome s Gregory

3、 Pet ers,MI T s Ricardo Cabal l ero,and GS David Mericl e and Wil l iam Marshal l express varying l evel s of sympat hy for t he drivers of t his reset:a reassessment of t he inflat ion/Fed out l ook,t he neut ral rat e,and t he t erm premium.Whil e Pet ers argues t hat persist ent l y above-t arget

4、 inflat ion shoul d hel p support 10y Treasury yiel ds cl oser t o t he t op end of t heir recent 3.5-5%range,Marshal l bel ieves t he furt her underl ying disinflat ion Mericl e expect s shoul d hel p yiel ds end t he year aroundor modest l y bel owcurrent l evel s.Looking furt her ahead,Cabal l er

5、o argues t hat 10y rat es coul d set t l e wel l bel ow current l evel s as he bel ieves t he fut ure neut ral rat e coul d prove l ower t han many t hink.But wit h t he risks skewed t oward higher rat es,we expl ore t he impl icat ions for risky asset s and port fol ios if bond yiel ds surge again.

6、“I NTERVI EWS WI TH:Gregory Peters,Co-Chief I nvest ment Officer,PGI M Fixed I ncome Ricardo Caballero,Professor of Economics,MI T David Mericle,Chief US Economist,Gol dman Sachs TERM PREMI A:NOT JUST A SUPPLY STORY Wil l iam Marshal l,GS US Rat es St rat egy Research NEUTRAL:FROM NOT AS LOW,TO NOT

7、AS HI GH Manuel Abecasis,GS US Economics Research CYCLI CAL RELI EF VS.STRUCTURAL CHALLENGES George Col e,GS European Rat es St rat egy Research RI SI NG YI ELDS AND FED CUTS:A PRECEDENT Vickie Chang,GS Market s Research Q&A:RI SKY ASSET I MPACTS OF HI GHER RATES GS Market s Research OPTI MAL PORTFO

8、LI OS AMI D HI GHER YI ELDS Christ ian Muel l er-Gl issmann,GS Mul t i-Asset St rat egy Research WHATS INSIDEofAllison Nathan|al l ison.nat .AND MORETOP MINDJenny Grimberg| Everywhere I l ook,I see morenot l essinflat ion I nflat ion has reset at a higher l evel,and t hat s a genie t hat s hard t o

9、put back in t he bot t l e.-Gregory Pet ersTwo mechanisms wil l l ikel y exert significant downward pressure on t he equil ibrium rat e over t ime.The first is a rebuil ding of t he equit y risk premium The second mechanism is a gl obal phenomenon known as indebt ed demand.-Ricardo Cabal l eroWhil e

10、 I t hink t he market is right t o ret hink neut ral,I worry it s at risk of overshoot ing,making t he same mist ake as l ast cycl e but in t he opposit e direct ion.-David Mericl eAshley Rhodes|ashl NoteNote:The following is a redacted version of the original report published February 5,2025 25 pgs

11、.hEl Goldman Sachs Global Investment Research 2 Top of Mind Issue 135 Macro news and views US Japan Latest GS proprietary datapoints/major changes in views We recently raised our December 2025 core PCE inflation forecast to 2.6%(from 2.4%)given the additional tariffs we now expect,namely a 10%tariff

12、 on critical imports.Datapoints/trends were focused on Fed policy;we expect two 25bp cuts this year in June and December followed by another cut in June 2026.Trump policies,which we expect to slightly weigh on growth this year but slightly boost growth in 2026.DeepSeek LLM,which could raise macroeco

13、nomic upside over the medium term if its cost reductions catalyze a faster buildout of AI platforms/applications.Latest GS proprietary datapoints/major changes in views No major changes in views.Datapoints/trends were focused on BoJ policy;we expect the BoJ to continue hiking rates at a steady pace

14、of roughly two hikes per year as underlying inflation increases gradually,with the next hike in July,but the risks are skewed toward a faster and/or longer sequence of hikes than markets currently expect.US tariff impacts;we see limited impacts on the Japanese economy from US tariffs on other countr

15、ies,including China and Mexico,though a non-negligible increase in the exports of some Japanese products is possible.(Deep)Seeking AI adoption Share of US firms using AI by sector,%Japanese inflation still running warm Japanese inflation,%chg,yoy Source:US Census Bureau,Goldman Sachs GIR.Source:Have

16、r Analytics,Goldman Sachs GIR.Europe Emerging Markets(EM)Latest GS proprietary datapoints/major changes in views No major changes in views.Datapoints/trends were focused on ECB policy;we expect the ECB to continue delivering sequential 25bp rate cuts to 1.75%in July.EA growth;we expect below-consens

17、us real GDP growth of 0.7%yoy in 2025,reflecting structural headwindsincluding high energy prices and competitive pressures from Chinatrade policy uncertainty,and ongoing fiscal consolidation.BoE cuts,which we expect to remain on a quarterly path.German elections,which could result in some additiona

18、l fiscal support,but it is unlikely to be sizable or swift enough to meaningfully support growth in 2025.Latest GS proprietary datapoints/major changes in views No major changes in views.Datapoints/trends were focused on China growth;we expect growth to slow from 6.6%in 4Q24 to 4.0%in 1Q25(qoq ann.)

19、as stronger 4Q24 activity owed to temporary factors and recent stimulus measures are unlikely to provide sustained support to growth.Indias growth slowdown,which we dont view as overly worrying,as policy tightening was likely an important contributor;we expect growth to reaccelerate to 6%this year g

20、iven the RBIs liquidity boost.EM inflation;we expect unfavorable FX headwinds in CEEMEA and LatAm to stall EM disinflation this year.China is eating Europes lunch Market share in global export volumes,chg relative to 2015 avg,pp China:an only-temporary cash-for-clunkers boost Retail sales,index,12/2

21、022=100,seasonally adjusted Source:Haver Analytics,Goldman Sachs GIR.Source:Haver Analytics,Goldman Sachs GIR.05101520253035Transportation and WarehousingAccommodation and Food ServicesConstructionOther ServicesManufacturingRetail TradeWholesale TradeAll IndustriesAdmin/Support/Waste ManagementArts,

22、Entertainment,and RecreationHealth Care and Social AssistanceReal Estate and RentalFinance and InsuranceEducational ServicesProfessional,Scientific,and TechnicalInformationOctober 2023January 2025Next Six Months-3-2-101234520182019202020212022202320242025All Items CPICore CPI(Ex.Freshfood)New Core C

23、PI(Ex.Freshfood&Energy)Core Core CPI(Ex.Food&Energy)-5-4-3-2-10123452015201620172018201920202021202220232024USEuro AreaJapanOther DMsChina8090100110120130140150Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Mar-24 Jun-24 Sep-24 Dec-24Home applianceAutoAll other retail salesConsumergoods trade-inprogramintensifi

24、edWe provide a brief snapshot on the most important economies for the global markets hEl Goldman Sachs Global Investment Research 3 Top of Mind Issue 135 After falling to fresh lows in September as the Fed embarked on its long-awaited rate cutting cycle,10-year US Treasury yields have reached as hig

25、h as 4.8%in recent weeks before retracing to still well-above September lows,leading to a reset higher of bond yields globally even as most major central banks remain in easing mode.What to make of this unusual bond yield behavior,whether bond yields will remain elevated as markets continue to diges

26、t tariff and broader economic developments,and the implications for risky assets and investor portfolios,is Top of Mind.We first speak with David Mericle,GS Chief US Economist,and Gregory Peters,Co-CIO of PGIM Fixed Income,to explore the drivers behind this bond yield repricing,which GS senior marke

27、ts strategist Vickie Chang confirms is unusualbut not unprecedentedin the history of Fed easing cycles.Mericle breaks down the rates move into three fundamental components:a repricing higher of the Fed path on inflation concerns,an upward reassessment of the longer-term neutral interest rate,and a s

28、ignificant rise in the term premium,and we dig into each of them in turn.Mericle argues that the underlying trend remains toward further US disinflation,which Trumps likely policies will somewhat offset but not derail.While the recent tariff developments leave Mericle viewing further Fed cuts this y

29、ear as a very close call,he maintains that,with this inflation backdrop,market pricing as a probabilistic statement about possible Fed paths in the coming years is still a bit too hawkish.Peters is more concerned about inflation,arguing that everything from the labor market to supply chain trends to

30、 recent climate events suggest a persistently above-target inflation environment regardless of whether US policy shifts ultimately prove inflationary.What about the neutral rate?Mericle and Peters both have some sympathy for the markets upward reevaluation of neutral given the strength of the econom

31、y and the level of financial conditions.But the markets 4%+current estimate for the nominal neutral rate is above Peters and Mericles low-to-mid 3%modal range for this cycle,suggesting that the market may have gone too far.Mericle and GS US Economist Manuel Abecasis argue that the market may be over

32、shooting neutral in this cycle for the same reason that it undershot it in the last cycleinvestors are inferring too much about the economys long-term state from its current state,which is being affected by forces that will eventually fade.MITs Ricardo Caballero goes a step further,estimating a futu

33、re neutral rate of around 2.5%,and possibly even lower.Caballero doesnt buy common arguments around the economys resilience and AI-driven productivity growth as reasons to believe in a structurally higher neutral rate.Rather,he argues that a rebuilding of the equity risk premiumwhich has all but dis

34、appeared over the last few yearsand global fiscal consolidation as governments worldwide try to reduce their massive debt loads will significantly weigh on equilibrium interest rates over time,pushing down the neutral rate.And what about the term premium?Peters and GS Head of US Rates Strategy Willi

35、am Marshall note that higher debt levels and growing fiscal sustainability worries have been an important driver of the higher term premium,and Peters expects this upward pressure to persist in light of the concerning US fiscal trajectory.While Marshall also sees continued fiscal pressures on the te

36、rm premium,consistent with our view that the fiscal trajectory is likely to get worse before it gets better,he thinks the further underlying disinflation Mericle expects should offset some of the upward impact on the term premium.So,what does all this mean for Treasury yields?Peters argues that fisc

37、al concerns and the persistently higher inflation environment he expects should keep 10-year Treasury yields closer to the top end of their recent 3.5-5%trading range,while Marshall expects yields to end the year around or modestly below current levels.And GS Head of European Rates Strategy George C

38、ole argues that this benign US rates path alongside the cyclical relief he expects in Europe and the UK should lead 10-year Bund and Gilt yields lower to 1.9%and 4.0%,respectively,by end-2025.Despite their fairly benign forecasts,we explore how vulnerable risky assets are to a renewed rise in yields

39、.GS markets strategists argue that the speed and drivers of the move would determine the asset impacts,with a gradual growth-driven rise in yields likely to be well-digested by equities and corporate credit.They caution that risky assets would be much more vulnerable in the event of a sharp inflatio

40、n-driven move higher.In such a scenario,Peters would worry most about the leveraged loan and private credit markets within the credit universe,where risks have migrated from the US high-yield market,which he notes is in its best shape in a long time.So,how should investors be positioned?GS Head of A

41、sset Allocation Research Christian Mueller-Glissmann believes that higher bond yields alongside current elevated equity valuations and less positive equity/bond correlations argue for increased bond allocationsand lower equity allocationsin multi-asset portfolios,with bonds now standing a better cha

42、nce of outperforming cash.While Peters also prefers bonds to cash and sees a role for bonds in portfolios given their attractive carry and protective benefits,he is not particularly excited about Treasuries today given their volatility,which he expects to remain a feature of the market for some time

43、.Peters sees more compelling opportunities in ex-US sovereign bond markets as diverging inflation trends allow G10 central banks to each chart their own paths,which he argues opens up“a big opportunity in global bond markets.”Allison Nathan,Editor Email: Tel:212-357-7504 Goldman Sachs&Co.LLC High bo

44、nd yields:here to stay?hEl Goldman Sachs Global Investment Research 4 Top of Mind Issue 135 David Mericle is Chief US Economist at Goldman Sachs.Below,he provides an economists perspective on the reset higher of US bond yields and argues that the market might have overshot a bit in raising its estim

45、ate of the long-run neutral rate.Allison Nathan:In the years before the pandemic,the 10-year Treasury yield was in the 2s.Now its in the high 4s.How did we get here?David Mericle:Heres an economists perspective on long-term interest rates.We can break the story into three parts.First,the markets exp

46、ectation for Fed policy in coming years has become more hawkish recently,especially since the Republican sweep in the elections.Second,the market has substantially raised its assessment of what the neutral rate is likely to be in the longer term,which gives you a sense of where interest rates might

47、be on average at a more distant horizon when we dont know what state the economy will be in.And third,the term premium has risen quite a bit from a very low level at the end of last cycle.Allison Nathan:Lets take those pieces one at a time.First,what is the market expecting the Fed to do?And how doe

48、s that compare to your view?David Mericle:Market pricing implies nearly two cuts this year and then a roughly flat funds rate at close to 4%for the next few years.We expect the Fed to cut twice this year and once next year to 3.5-3.75%.Im not certain thats exactly what theyll do,and recent tariff de

49、velopments make further cuts this year a very close call.But I do feel that market pricing as a probabilistic statement about possible Fed paths in the coming years is still a bit too hawkish.That close to 4%funds rate that the market is pricing for the next few years is probably quite close to the

50、top of the range of where the FOMC might plausibly see neutral and be willing to leave policy on hold indefinitely.Because theres always some chance of large rate cuts in a potential recessionand we see low risk,but theres never no riskthen for close to 4%to make sense as a probability-weighted aver

51、age outcome,you have to believe that theres a reasonable chance the Fed might hike.And indeed,the market puts the chance of a rate hike at around 25%over the next year,and I think thats too high.So,this first contributor to the rise in long-term interest rateswhat the market expects for the funds ra

52、te path over the next few yearslooks too high to me.Allison Nathan:Why dont you think Trumps policies could lead to rate hikes?Dont the higher tariffs that are so much in focus right now,as well as fewer low-wage immigrant workers and tax cuts mean higher inflation?And couldnt that mean higher inter

53、est rates?David Mericle:That is exactly the thought that drove bond yields to their recent peak,and directionally that made some sense,but I think the impact of Trumps policies is likely to be smaller and the risks are more two-sided than that move reflected.Neither our expectation of a decline in i

54、mmigration to moderately below the pre-pandemic annual pace nor our expectation of modest new tax cuts should boost inflation much.And,despite all of the recent ups and downs in tariff headlines,the tariffs on imports from China and some other items that we expect would only provide a moderate and o

55、ne-time boost to inflation on top of the current disinflation trend,causing inflation to fall by less than it otherwise would in 2025from the high-2s to the mid-2s instead of to the low-2sbut not to rise.I think the FOMC could look through that.Allison Nathan:Could a more extreme version of Trump po

56、licies plausibly create more of an inflation problem and at least raise a debate about hiking?What are the biggest risks to your view?David Mericle:A universal tariff would have a much larger effect and push inflation into the low 3s.Even then,I think Fed officials would set a very high bar to hike

57、from a starting point that they already see as meaningfully above neutral in response to a one-time price level increase.Larger tariffs would also have a more negative effect on the economy and likely on the equity market,which could cut in a dovish direction for the Fed.Thats what happened during t

58、he 2019 trade war,and the Fed wound up cutting three times.The other risk would be if the immigration crackdown is so severe that it not only reduces the flow of new immigrants but makes companies hesitant to employ the far larger stock of unauthorized immigrants already in the US.Thats 4-5%of the t

59、otal US labor force and 15-20%in some industries,and we estimate that these immigrants earn 20%less on average,so that would be costly and potentially very disruptive.Allison Nathan:Lets discuss the second reason you gave for the rise in long-term rates,the neutral rate reassessment.Last cycle the m

60、arket thought neutral was very low,now it thinks its much higher.Whats your take?David Mericle:Markets have a habit of inferring too much from current conditions about some alleged“new normal”long-term state of affairs.In the last cycle,the market,like many central bankers and economists,concluded t

61、hat neutral was and always would be very low,maybe 2-2.5%nominal and barely positive in real terms.We disagreed,basically because it didnt seem that surprising that the recovery was slow and painful in the aftermath of a major financial crisis,which has nearly always been true throughout history.The

62、re were persistent non-monetary policy headwinds after the financial crisisprivate sector deleveraging,disruptions to bank credit intermediation,and fiscal austeritybut they werent truly permanent,and so it seemed dangerous to infer that because the economy wasnt booming at low interest rates,we wou

63、ld always need ultra-low rates to stimulate enough demand to get to full employment.The market has raised its implicit estimate of neutral dramatically this cycle to over 4%nominal,presumably Interview with David Mericle hEl Goldman Sachs Global Investment Research 5 Top of Mind Issue 135 because we

64、 ran the experiment of taking the funds rate much higher and seeing what happened,and the economy has performed well.So,while I think the market is right to rethink neutral,I worry its at risk of overshooting,making the same mistake as last cycle but in the opposite direction.Those post-financial cr

65、isis headwinds are gone,and now we have two powerful non-monetary policy tailwinds boosting demand:a primary federal deficit 5%of GDP wider than it has historically been at full employment,and resilient risk sentiment that has muted the transmission from a higher funds rate to tighter financial cond

66、itions.Those forces wont be with us forever either,and when theyre not,we might find that the economy doesnt perform as well as it is now with a funds rate of 4%or higher.We have kept our estimate of long-run neutral at 3-3.5%nominal from last cycle to this cycle.Long-run neutral is not a concept I

67、find particularly useful for thinking about where monetary policy should be today,because policymakers ought to take account of other forces influencing demand,but it is useful for thinking about long-term rates,when those other forces might more plausibly balance out over time.So,on this second con

68、tributor to higher long-term rates,neutral,I think the market is again a bit too high.Allison Nathan:On the third reason,why has the term premium risen so much from last cycle?Does that make sense to you?David Mericle:Toward the end of last cycle,model-based decompositions of bond yields told us tha

69、t the term premium had turned negative.We knew that was a big change from prior cycles,but it seemed to make senseno one my age in the US had seen serious supply shocks.Modern business cycles instead appeared to be driven by fluctuations in demand,and in a demand-driven recession,since demand is wea

70、k,inflation will be low and central banks will aim to lower real rates,so your bonds should pay off when your risky assets are falling in value.And the thought was,youre supposed to pay a premium for something that provides insurance,not receive one,so the term premium should be negative.Well,a pand

71、emic and a major war in Europe were powerful reminders that supply shocks are not just quaint relics of history.So,weve learned some important lessons,and there have been some other post-pandemic developments that also argue for a higher term premium.First,inflation risk isnt as negligible as we tho

72、ught.Second,supply shocks absolutely can still happen,so you cant count on bond returns and stock returns being as reliably negatively correlated as we assumed last cycle.Third,theres a lot more government debt now because fighting the pandemic recession was expensive,and if theres more supply you h

73、ave to offer a higher interest rate to get investors to buy itthats the mundane fiscal story.And then fourth is the more extreme fiscal storywith higher debt and much higher rates than before,the fiscal sustainability outlook has deteriorated,and its possible that investors want a premium for the ta

74、il risk of a future fiscal dominance scenario.I dont think you need that fourth story to explain the rise in the term premium since last cycle and I dont actually know if it has contributed meaningfully or not,but the theme does come up more and more in markets these days.As for quantifying what any

75、 one,let alone all four,of these considerations ought to be worth for the term premium,that is a very tough question,one I will gladly leave to our interest rate strategists!So,on the first two contributors to higher long-term interest rates the market is a bit high and on this third one Im agnostic

76、,if thats allowed.Add those three pieces up and long-term rates look a bit too high to me.Allison Nathan:Will Trumps fiscal policies worsen an already challenging US fiscal sustainability problem?Is that part of why the term premium has continued to rise recently?David Mericle:Measures of the term p

77、remium have risen noticeably in the last few months,so that could be part of the story of the post-election rise in long-term interest rates.We dont expect the primary deficit to change much under the new administration.We do expect Republicans to extend the expiring 2017 tax cuts and to introduce s

78、ome small additional tax cuts,but that would leave the primary deficit in roughly the same place.Concern about fiscal sustainability and Republicans thin majority in the House are the two reasons we dont expect further fiscal expansion.That said,not taking action still means that the problem will co

79、ntinue to worsenthe debt-to-GDP ratio will rise,interest expense will rise,and the problem compounds itself.So,I dont expect a provocative new budget to suddenly generate a crisis,like what we saw in the UK,but I could still imagine concerns about long-term fiscal sustainability bubbling up in marke

80、ts and pushing the term premium higher at some point.I dont think theres any way to know exactly when that might happen,but the subject does come up these days in client conversations more than at any point I remember,so its an ever-present risk.hEl Goldman Sachs Global Investment Research 6 Top of

81、Mind Issue 135 Gregory Peters is Co-Chief Investment Officer of PGIM Fixed Income.Below,he argues that persistently higher inflation and concerns about the fiscal trajectory in the US and beyond are likely to keep bond yields closer to the top end of their recent range.The views stated herein are th

82、ose of the interviewee and do not necessarily reflect those of Goldman Sachs.Allison Nathan:While US Treasury yields have been volatile,they remain well above where they were at the start of the Feds cutting cycle last September.Why is that?Gregory Peters:Fed officials are confounded by the fact tha

83、t interest rates have generally moved higher despite Fed rate cuts,which is undoubtedly anomalous relative to history.But a genuine re-rating has occurred in the bond market,with a rise in real yields,inflation breakevens,and term premia all contributing to the rise in nominal yields across the curv

84、e.A primary driver of this re-rating has been market expectations that policies under the new Trump Administration will likely boost growth but also inflation,with tariff and immigration policy particularly in focus regarding the latter.Allison Nathan:Are concerns about higher inflation justified?Gr

85、egory Peters:Only time will tell if policy shifts under the new administration will prove inflationary.And even if they do,the Fed will likely look through policy-driven one-time shifts in the price level.Remember that during the first round of tariff increases in the 2018/19 trade war,the Fed was a

86、ctually more worried about growth than inflation and cut interest rates.That said,historically,once prices start to rise,they tend to continue rising as companies continue to pass on higher costs.And potential policy shifts would just accelerate what I see as persistently inflationary dynamics all a

87、round us.Everywhere I look,I see morenot lessinflation.The labor market remaining resilient is inflationary.The housing market proving less responsive to higher rates than many thought is inflationary.Companies onshoring to better control and secure their supply chains is inflationary.And climate ev

88、ents are inflationary,with the California wildfires and the substantial draw on resources and labor required to rebuild there an extreme example of this.This environment marks a dramatic change from the pre-pandemic period,when inflation was persistently below target.I expect inflation to remain per

89、sistently above target going forward,not dramatically so,but it is the persistence that matters.Inflation has reset at a higher level,and thats a genie thats hard to put back in the bottle.Everywhere I look,I see morenot lessinflation.Inflation has reset at a higher level,and thats a genie thats har

90、d to put back in the bottle.Allison Nathan:Even with inflation breakevens having risen a bit,the market is not currently pricing in much inflation risk premium.What do you make of that?Gregory Peters:Subdued inflation risk pricing suggests that the Fed has maintained its inflation-fighting credibili

91、ty and has not lost control over the inflation situation,which is an important narrative.Should inflation breakevens move sustainably higher,that would suggest not only that inflation is slated to be higher,but also that the Fed has lost its ability to control it,which would be a death knell for mar

92、kets.So,breakevens are important to watch.Allison Nathan:How big a role are concerns about the US fiscal trajectory playing in the bond yield re-rating,and are those concerns justified?Gregory Peters:Concerns about high post-pandemic government debt and deficits are and will continue to be a definin

93、g story for the US and globally in 2025 and beyond.These concerns first manifested in UK markets with the 2022“Liz Truss moment”,but remain a focus in the UK,France,and certainly the US.Even the more conservative fiscal scenarios under the new administration suggest a debt-ridden government balance

94、sheet,and less conservative fiscal scenarios could push US debt-to-GDP as high as an eye-popping 160%in 10 years time.I am most concerned about the debt service dynamics.In 10 years,we estimate that around a quarter of current government revenue would go directly to interest payments,all else equal.

95、That would be a classic debt trap,which would be a very deep hole to dig out of.So,markets are right to worry about the sheer amount of sovereign debt hitting the global bond market.And these worries are very likely to continue putting upward pressure on the term premium and bond yields as investors

96、 demand higher yields to absorb this supply.Allison Nathan:So,has the neutral rate also shifted higher?Gregory Peters:Fed officials themselves have asked me whether current Fed policy is restrictive because their neutral rate estimates and todays inflation backdrop suggest that it is,but financial c

97、onditions and other measures suggest otherwise.Given this uncertainty,I expect the Fed to continue cutting rates to the top bound of neutralwhich is currently around 4%and then reassess whether current estimates of the neutral rate are actually neutral.For my part,I think the neutral rate is in the

98、2.5-4%range,with somewhere around 3.25-3.5%as the modal point if I had to put a fine point on it,which is somewhat higher than many considered it to be last cycle.Interview with Gregory Peters hEl Goldman Sachs Global Investment Research 7 Top of Mind Issue 135 Allison Nathan:So,where do you expect

99、the 10-year US Treasury yield to go from here?Gregory Peters:I expect the 10-year to continue to traverse a wide range between roughly 3.5%on the low end and up to 5%on the high end given an environment driven by policy uncertainty and the Feds reaction function to that uncertainty.A key difference

100、today from most of the previous 15 years is a lack of forward guidance from the Fed as officials navigate this uncertainty,which fuels volatility.So,bond yield volatility will likely remain a key feature of the market for some time.Bond yield volatility will likely remain a key feature of the market

101、 for some time.Allison Nathan:In recent weeks,the market began pricing a higher probability of a 5%+rate environment.Was that move overdone?Gregory Peters:It was likely a little overdone on the margin,with market positioning pushing it in that direction.Markets continue to swing too much on the tail

102、s,as reflected in the SOFR option market.Last September,the market was pricing a roughly 60%probability of a fed funds rate below 2.5%at the end of 2025 but swung sharply to an expectation of above 4%by year-end as the likelier outcome in recent months and is now pricing around a 25%probability of a

103、 rate hike this year.While it not our base case,it could happen,and if it does,I doubt it would be limited to just one hike;historically,once the Fed hikes,more hikes follow.But,while risks to bond yields seem skewed to the upside right now,5%+yields dont seem sustainable to me given the current bac

104、kdrop.Allison Nathan:What would make you more worried?Gregory Peters:We learned in 2021 and 2022 that inflation is a portfolio killer.Investors have been conditioned to put on rate hedges when the world falls apart,so that they make money on the front-end as rates are cut and duration rallies.That o

105、pportunity doesnt exist when inflation is going the other way.So,my biggest worry is exactly that scenario in which the Fed has to react to a much more hurtful inflation environment than what is currently priced in,which is hard scenario to protect overall portfolios against.Allison Nathan:If rates

106、do rise to the 5%+range,what areas of the market would be most vulnerable?Gregory Peters:Credit investors have seemed somewhat befuddled by the lack of company defaults and distress as bond yields have re-rated higher.But that just owes to the strength of the underlying macro environment and fundame

107、ntals;credit spreads are tight because the macro and corporate backdrop is generally healthy.That said,in a persistently higher-than-expected rate environment driven by unanticipated inflation,Id worry about the most levered parts of the credit market,such as the leveraged loan market as well as the

108、 private credit market,where opacity is also a concern.Credit markets have experienced a bifurcation in recent years,with the US high-yield bond market in the best shape its been in in a very long time,if not ever,as risk has been transferred to those two markets.So,thats where signs of distress for

109、 the companies built on the back of zero interest rates would rear their ugly head.But,without a recession,this natural winnowing out process of the most vulnerable companiesa necessary process,in my viewwould take time.Allison Nathan:How do your views and the risks around them translate into invest

110、ment strategies?Gregory Peters:My view of the role of fixed income in a portfolio has reverted to its more traditional role,which wasnt the case post the Global Financial Crisis.Bonds play a useful role in a portfolio today given their carry,which is the best its been in a decade.That said,on the cr

111、edit side,I dont feel compelled to go out the risk curve because the risk/reward is skewed against investors.The quite snug credit spreads I mentioned make sense in the current macro environment,but that doesnt make them a good investment.So,weve substantially pulled back our credit risk and are run

112、ning much lighter on the credit side than we have in a very long time.The credit exposure we do have is centered on the short-end of the curve to capture the carry as well as on some structured products,where we see some value and whose protective characteristics are attractive.On the duration side,

113、were also positioned close to home.The carry is no doubt attractive.And,for portfolios with a substantial amount of risky assets,the downside protection US Treasuries offer makes a lot of sense.In that regard,Id want to own bonds versus cash because cash returns are ephemeral and decline when invest

114、ors need them the most i.e.if the macro environment weakens,and the Fed cuts rates,cash returns will decline.But the extreme bond yield volatility that weve been discussing introduces too much volatility to own more duration in our portfolios.There will likely come a point,though,where sovereign bon

115、ds will be a much bigger driver of our portfolios as credit will continue to look less and less attractive as spreads rest very close to all-time historical tights.To that end,I am focused on the potential for a crowding-out effect.I havent seen such an effect yet.But,given all the sovereign supply

116、set to hit the market,a crowding out of corporate credit and other assets seems likely at some point.For the first time in a long time,I see more value in sovereign bonds outside the US than in the US,which represents a big opportunity in global bond markets.Allison Nathan:How do you view opportunit

117、ies in US Treasuries versus ex-US sovereign bonds today?Gregory Peters:Up until recently,global rate moves were a US Treasury-dominated“market of one”world.Central banks were all moving in unison,driven by similar inflation trends.Thats no longer the case;sovereign bond correlations are much weaker,

118、which provides compelling investment opportunities.For example,more scope for the ECB to cut rates than the Fed given Europes weaker macro picture as well as the recent sharp moves in the Gilt curve have caught my attention.So,for the first time in a long time,I see more value in sovereign bonds out

119、side the US than in the US,which represents a big opportunity in global bond markets.hEl Goldman Sachs Global Investment Research 8 Top of Mind Issue 135 US Treasury yields have risen sharply since late last year,with the moves concentrated in the back-end Change in USD rates since the election,bp S

120、hifting growth and policy expectations have been key drivers of the move in long-end yields.10y US Treasury yield change by macro factor,bp Source:Goldman Sachs GIR.Source:Bloomberg,Goldman Sachs GIR.as the market has attached increased weight to a scenario where the fed funds rate remains high Opti

121、on-implied probability of funds rate outcomes two years forward,%The term premiuman important component of long-end yieldshas reset significantly higher.10y term premium,GS model estimate,%Source:Goldman Sachs GIR.Source:Bloomberg,Goldman Sachs GIR.partly owing to growing fiscal sustainability conce

122、rns as US public debt levels have continued to rise.Debt as a share of domestic financial assets .though longer-term yields have become less sensitive to shifts in the debt burden over time,likely owing in part to a rise in private sector savings Sensitivity coefficients,bp Source:Goldman Sachs GIR.

123、Source:Goldman Sachs GIR.Special thanks to GS Rates Strategy team for all charts.-10-505101520253035402y5y5y5y10y10yInflationRealNominal-30-20-1001020304050Nov-13 Nov-22 Dec-03 Dec-12 Dec-23 Jan-01 Jan-10 Jan-21 Jan-30Growth(PC1)Policy(PC2)Inflation(PC3)Residual10y UST yield change010203040506070809

124、0100Jan-24Apr-24Jul-24Oct-24Jan-25Recession(4.25%)-2-101234199519982001200420072010201320162019202220250102030405060199019941998200220062010201420182022Private nonfinancial debtPublic debt(%of total financial assets held by domestic nonfinancial sector)0.00.51.01.52.02.53.03.54.01992 1995 1998 2001

125、2004 2007 2010 2013 2016 2019 20225y5y yield sensitivity to debt/GDP5y rolling averageA snapshot of the US rates reset hEl Goldman Sachs Global Investment Research 9 Top of Mind Issue 135 William Marshall argues that fiscal pressures on Treasury term premia face near-term offsets from other drivers

126、of term premia,which see 10y US Treasury yields finish the year around current levels With the recent volatility in US bond markets partly owing to a reevaluation of the term premium(see pgs.4-5),how the term premium evolves from here will be an important determinant of where Treasury yields settle.

127、Discussions of Treasury term premia often focus on fiscal risks and the accumulation of duration supply.While government debt levels and fiscal sustainability considerations warrant particular attention in todays high debt environment,a wide range of factors beyond fiscal pressures influence term pr

128、emia.Shifts in these drivers have been generally consistent with an upward reset in term premia from pre-pandemic norms.Over the next year,however,some of these drivers could counteract the supply impact on term premia and,in turn,longer-term yields,consistent with our forecast that 10y US Treasury

129、yields finish the year at 4.35%.Increased Treasury supply is a large part of the story.Term premia reflect the compensation investors require for taking duration risk in excess of the expected return of rolling over short-term debt.Although not directly observable,a range of estimation techniques th

130、at attempt to decompose yields into their two component partsexpectations of the future path of policy and term premiumuniversally suggest that Treasury term premia has risen meaningfully since 2019.Persistently large government deficits have driven considerable growth in the size of the Treasury ma

131、rket over this period.Treasury free floatthe total amount of Treasuries outstanding minus those that sit on the Feds balance sheethas grown from$14.4tn(65%of GDP)in 2019 to$24tn(80%of GDP)at the end of 2024.In addition to persistent deficits,the forward-looking debt-to-GDP trajectory has steepened s

132、ubstantially and is highly sensitive to borrowing costs relative to growth.For a given level of safe asset demand,more Treasury supply should result in higher yields to incentivize absorption,boosting term premia.Additionally,we have found that bond supply shifts tend to matter more in the context o

133、f a higher expected path for short-term rates relative to trend growth,as is the case today.but not the whole story While higher debt levels and the resulting increase in Treasury supply have played an important role in the upward reset in term premia over the last several years,other factors have b

134、een at work as well.Economic shocks can drive shifts in term premia,though the impact ultimately depends on the underlying drivers of the shock.When shocks are predominantly demand-driven,inflation and growth tend to move in the same direction.This co-movement strengthens the hedge value of bonds in

135、 times of negative demand shocks,thereby depressing term premia.When supply shocks occur,the less positive(or potentially negative)correlation between growth and inflation erodes this value proposition,putting upward pressure on term premia.The supply-side disruptions,high inflation,and forceful Fed

136、 tightening of the pandemic period meaningfully reduced the case for owning Treasuries to hedge risky assets,an important part of why term premia has risen significantly over the last several years.Uncertainty around the growth,inflation,or policy outlook can also impact term premia,as investors wil

137、l likely require more compensation for lending money when risks are elevated.Following the relatively low volatility environment of the late 2010s,significant uncertainty around the business cycle supported meaningfully higher rate volatility over the last few years,another key component of the high

138、er term premia story.Taken together,these factors have contributed to the upward reset in term premia from pre-pandemic norms.And while the robust appreciation in asset valuations over the last several years and healthy private sector balance sheets have tempered some of this upward pressure by supp

139、orting safe asset demand and limiting crowding-out effects,the net effect remains higher term premia.Some moderation likely ahead The US fiscal outlook likely limits the scope for yields to move significantly lower,supporting a higher neutral rate and upward pressure on term premia over time.Tariffs

140、 may be a near-term complication,but evidence that underlying pressures are converging toward target-consistent inflation levelswhich the market doubts but we expectshould offset some of that impact.That should,in turn,reduce the risk of a restrictive policy stance over the medium-term,dampening unc

141、ertainty,and instilling greater confidence in the hedge value of bonds.Altogether,these developments should support our baseline view that 10y Treasury yields can end the year around or modestly below current levels.Different term premia estimates are aligned in showing an upward reset vs.pre-pandem

142、ic norms ACM and Kim and Wright 10y Treasury term premia estimates,%Source:Federal Reserve,New York Fed,Bloomberg,compiled by GS GIR.-2-101234200020032006200920122015201820212024Adrian,Crump,and Moench(ACM)10y term premiaKim and Wright(KW)10y term premiaACM 2015-2019 AverageKW 2015-2019 AverageTerm

143、premia:not just a supply story William Marshall,Head of US Rates Strategy Email: Goldman Sachs&Co.LLC Tel:212-357-0413 hEl Goldman Sachs Global Investment Research 10 Top of Mind Issue 135 Ricardo Caballero is the Ford International Professor of Economics at MIT and the former Chairman of MITs Econo

144、mics Department.Below,he argues that the neutral interest rate in the future could prove lower than many think as the equity risk premium rebuilds and governments worldwide embark on fiscal consolidation.The views stated herein are those of the interviewee and do not necessarily reflect those of Gol

145、dman Sachs.Jenny Grimberg:How useful is the concept of the neutral interest rate in guiding and assessing the stance of monetary policy?Ricardo Caballero:The concept of the neutral rateor r*is much less useful as a guidepost for Fed policy than widely assumed,because the connection between aggregate

146、 demanda crucial indicator of the economys healthand the policy rate is unstable.Thats because many financial variables beyond interest rates impact aggregate demand,including stock prices and exchange rates.And financial conditions,as measured by a Financial Conditions Index(FCI)that captures these

147、 variables in addition to interest rates,often dont behave consistently with interest rates.Case in point:after the Global Financial Crisis(GFC),financial conditions were tight despite persistently low interest rates,while financial conditions in the current cycle have generally remained loose even

148、as interest rates have risen sharply.The more stable relationship between aggregate demand and FCI has led myself,along with Toms Caravello and Alp Simsek,to argue for shifting from an r*-centric to FCI*-centric framework to guide monetary policymaking.Jenny Grimberg:What has accounted for the wedge

149、 between r*and FCI*?Ricardo Caballero:The main driver of the wedge between r*and FCI*is the risk premiumthe risky interest rate minus the risk-free,or safe,rateand,in particular,the equity risk premium(ERP).The ERP has fluctuated wildly over the last two decades,rising following the Dot Com bubble a

150、nd the GFC owing to heightened risk awareness and regulatory changes.I,Emmanuel Farhi,and Pierre-Olivier Gourinchas have found that the return on risky capital remained relatively stable over this period,so this rise in the ERP meant that the equilibrium safe interest ratewhich is essentially the ne

151、utral rate,because,over the long run,bond markets anchor to estimates of neutraldeclined.That dynamic has reversed over the last few years,with the risk premium falling from around 400bp pre-pandemic to 50bp today.As a result,the equilibrium interest rate has moved sharply higher.Jenny Grimberg:Many

152、 market watchers seem to expect the equilibrium interest rate to remain high.Do you agree?Ricardo Caballero:Im skeptical.Two mechanisms will likely exert significant downward pressure on the equilibrium rate over time.The first is a rebuilding of the ERP.The recent risk premium compression feels lik

153、e a temporary phenomenon that will at least partially reverse,for two reasons.One,retail investors became much more active in the post-pandemic period,and the momentum trade has performed exceptionally well.But most momentum trades eventually crash,which should reset expectations and increase risk a

154、wareness.Two,inflation has been front and center in investors minds,displacing recession fears.As a result,large-cap equities have acted as a“safe asset”,diverting investor demand away from bonds and compressing the ERP in the process.But this shift will likely reverse as inflation risks fade the cl

155、oser inflation comes to target and recession risks inevitably rise.The second mechanism is a global phenomenon known as“indebted demand”.As debt accumulates,new demand becomes heavier.In the near future,high levels of public debt will reduce public demand,much like what occurred in the private secto

156、r after the GFC.This trend is now evident in governments globally.In response to the pandemic,governments ran massive deficits,driving debt to historical highs.These high debt levels have triggered deficit reduction initiatives across many advanced and emerging economies,which will put downward pres

157、sure on aggregate demand.To compensate,demand will need to shift to the private sector.And the way to induce more private sector demand is to lower equilibrium interest rates.Now,the US is a notable outlier because it has yet to embark on the fiscal retrenchment process,which will slow the global do

158、wnward pressure on interest rates.But it is almost certainly a question of when,not if,the US pursues fiscal adjustment.Taken together,these mechanisms will substantially weigh on the neutral rate.To put some numbers around this,I suspect FCI is currently near FCI*at an effective federal funds rate

159、of 4.38%.If the ERP rebuilds to even half its pre-pandemic level,that would equate to a 150bp reduction in the current funds rate,lowering the neutral rate to around 2.88%.Assuming fiscal deficits fall by an average of 2%of GDP globally,that would lower equilibrium rates by another 40bp under conser

160、vative estimates of the impact of deficits on interest rates,leaving the neutral rate at 2.48%.So,I estimate a future short-run neutral rate of roughly 2.5%,though at what point in the future is difficult to say because whether the mechanisms weve discussed will exert their full impact in this cycle

161、 or over the course of several cycles is an open question.Jenny Grimberg:Its often argued that higher government debts put upward pressure on interest rates because the private investors who will increasingly have to absorb those debts will demand a higher interest rate to do so.Why dont you believe

162、 that will be the case?Ricardo Caballero:While investors can substitute out of,for example,Argentinian debt if the interest rate on the debt is too low,very fewif anysubstitutes exist for US government debt in sufficient size.So,creditors have limited power to demand that the US government pay more

163、to borrow.And as the saying goes,a small loan is the borrowers problem,a large loan is the lenders problem.In the case of sovereign debt,the Interview with Ricardo Caballero hEl Goldman Sachs Global Investment Research 11 Top of Mind Issue 135 problem lies not with the lender but with aggregate dema

164、ndgovernments enormous debt loads will lead to insufficient aggregate demand,so,in equilibrium,interest rates must fall to incentivize the private sector to cover the demand shortfall.Now,the term premiumthe compensation investors require for holding long-term bonds rather than a series of shorter-t

165、erm bondsmay have to rise significantly to incentivize investors to own long-term bonds.But a sharp rise in the term premium would tighten financial conditions,which would argue for even lower front-end interest rates.Jenny Grimberg:Doesnt US economic growth running above potential even at a 4%+Fed

166、funds rate imply a structurally higher neutral rate?Ricardo Caballero:The resilience of aggregate demand to higher interest rates is not a function of the US economy potentially being able to tolerate higher rates,but rather of loose financial conditions.With the notable exception of 2022 when the F

167、ed embarked on an aggressive hiking cycle that rattled equity markets,the economy has not experienced a prolonged period of tight financial conditions to really test its resiliency.The strength of the US economy as a whole also masks an underlying imbalance that could become problematic,a phenomenon

168、 that I like to describe as“Financial Dutch Disease”.The Mag 7 tech companies and broader AI complex have fueled enormous wealth creation,forcing the Fed to keep rates higher for longer to counteract this wealth effect.This policy stance has disproportionately weighed on small-cap stocks and rate-se

169、nsitive sectors,resulting in an imbalance akin to what the Dutch economy suffered in the 1970s when the Florins appreciation on the back of oil discoveries undermined the countrys manufacturing export sector.These imbalances will eventually act as a drag on the US economy,necessitating lower rates t

170、o restore economic equilibrium.Jenny Grimberg:Some market watchers argue that higher productivity growth on the back of widespread AI adoption could lead to a structurally higher neutral rate in the coming years/decades.How does that square with your belief that the neutral rate could prove low?Rica

171、rdo Caballero:The AI boom matters much more for the short-term neutral rate than for the medium-term neutral rate.In the short term,the AI boom has undoubtedly been a major driver of higher interest rates.AI-driven optimism has lifted equity valuations significantly,creating a wealth effect that has

172、 boosted aggregate demand while AIs impact on productivity and potential output will take longer to materialize.The result is excess demand,which puts upward pressure on inflation and interest rates.Over the longer term,the technologys impact on interest rates will depend significantly on its effect

173、 on potential output.Even assuming that AI permanently raises total factor productivity growth by 50bp annuallya wildly optimistic assumptionthe resulting boost to the neutral rate would be at most 50bp,and likely much smaller.The combined impacts from the likely rebuilding of the ERP and global fis

174、cal retrenchment would likely dwarf that.Jenny Grimberg:Its also been argued that the moderation of the global savings glut that characterized much of the last two decades could put upward pressure on the neutral rate.Whats your view?Ricardo Caballero:The savings glut story is fundamentally about fl

175、ows:too much saving chasing too few investment opportunities,depressing equilibrium interest rates.I prefer to frame it in terms of stocks:too few assets relative to the large and growing demand for stores of value.I have long argued that the global economy recurrently creates bubbles to address thi

176、s persistent asset shortage.The specific assets that fulfill the“store of value”role have varied over time,but in the aftermath of the late 1990s EM crisis,Dot Com bust,and GFC,the most in-demand and scarcest of all assets were the traditional safe assetsprime sovereign bonds,particularly US Treasur

177、ies.The scarcity of these safe assets drove the secular decline in safe interest rates weve discussed and ultimately brought the global economy to the brink of what I and Farhi have termed a“safety trap”a liquidity trap driven by a shortage of safe assets.That dynamic has shifted in recent years as

178、prime sovereign debt has become abundant and,until recently,carried inflation risk.In this environment,mega-cap tech and AI stocks have emerged as the new scarce“safe assets”,which is an important part of the ERP compression story of the last few years.But the underlying issue remains:enormous globa

179、l demand exists for stores of value,yet asset creation continues to chronically lag behind.And as investors continue to rotate between asset types in search of stores of value and those who have amassed wealth from the AI boom eventually seek to reallocate that wealth into safer investments,portfoli

180、os will likely gradually rotate back toward safe sovereign bonds,exerting downward pressure on equilibrium safe interest rates.Jenny Grimberg:Policymakers and investors have been reevaluating their estimates of the neutral rate higher.So,has this reevaluation been misguided,and what would it take to

181、 spur a rethink?Ricardo Caballero:Misguided is a strong word,but I believe the mechanisms weve discussedERP rebuilding and indebted public demandhave not been sufficiently considered in the prevailing neutral rate arguments and models.Beyond just giving them more consideration,a rethink would requir

182、e accumulating evidence that the US economy is slowing down and cannot sustain interest rates at current levels.Hopefully,this happens gradually,allowing proponents of a structurally higher neutral rate to slowly update their priors,though an equity market crash,intensifying global recessionary forc

183、es,or the Financial Dutch Disease unfolding could cause a more aggressive slowdown and trigger a more rapid introspection.Jenny Grimberg:Given everything weve talked about,where do you expect 10-year rates to settle?Ricardo Caballero:The term premium is important to consider here.Currently,the term

184、premium is around 50bp;the average level prior to the GFC was closer to 100bp.If the term premium returns to its pre-GFC average,the 10-year rate would be around 3.5%the 2.5%future short-run neutral rate plus 100bp of term premiumwell below the current level of 4.4%.If the term premium were to rise

185、above 100bp,perhaps owing to growing concerns about US debt sustainability,that would exert downward pressure on the front-end,so the term premium spike wouldnt be fully absorbed by the back-end.If such steepening were to persist,it could leave the future neutral rate below even my relatively low 2.

186、5%estimate.hEl Goldman Sachs Global Investment Research 12 Top of Mind Issue 135 Manuel Abecasis argues that consensus around the level of the neutral rate looked too low last cycle,and now looks too high The neutral long-term interest rate,or r*,is the rate that would stabilize the economy at full

187、employment and the Feds inflation target,assuming other influences on the economy are at normal levels.Since the ups and downs of the business cycle should average out over many years,the neutral rate is a useful anchor for long-term interest rates.As such,trying to understand what r*will be is key

188、to the question of where interest rates may settle.From a too low r*consensus.Last cycle,a consensus emerged among most investors,policymakers,and academic economists that the neutral rate wasand would remainvery low.That consensus was based on theoretical arguments about changes in the economy that

189、 should lower the neutral rate,model-based estimates of neutral,and the decline in market-based proxies for the neutral rate.But we have long been skeptical of that consensus for several reasons.First,we found that changes in the theoretical drivers of the neutral ratesuch as an aging population,low

190、er productivity growth,higher inequality,globalization,and reduced risk appetite,which all impact savings and investment and accordingly influence r*did not justify as large a decline in r*as the consensus suggested.Second,many models took the sluggish recovery following the Global Financial Crisis(

191、GFC)as proof that r*had fallen to very low levels.But slow growth is typical in the aftermath of very severe financial crises and did not imply that rates would need to stay low indefinitely.Models eventually revised up their assessment of neutral for the pre-pandemic period and now estimate that th

192、e nominal neutral rate was around 3.6%in 2018,closer to what the theoretical drivers of neutral implied it should be.But this reevaluation took several years.Third,market proxies of the neutral rate are heavily influenced by Fed communication and therefore cannot serve as an independent reflection o

193、f the neutral rate.The Feds influence on markets was so pronounced that all of the decline in long-term interest rates between 1990 and 2019 occurred in windows around Fed meetings.to a too high r*consensus Over the last few years,market proxies for the neutral rate have risen significantly,boosting

194、 long-term rates.And as investors digested the combination of strong growth and elevated inflation alongside a high fed funds rate and formed their own opinions about the level of r*,changes in long-term rates became much less anchored to Fed communications.Today,market proxies for the nominal neutr

195、al rate are roughly equivalent to the fed funds rate.In contrast,our estimate of the long-run nominal neutral rate is 3-3.5%,above the Feds 2.5%stopping point last cycle but below current market proxies.Market proxies for r*are now much higher than pre-pandemic 5-year yield 10 years forward,%Note:Ba

196、sed on OIS rates from 2004 and Treasury yields adjusted for the average difference between OIS rates and yields from 2004-2007 before then.Source:Federal Reserve,Goldman Sachs GIR.The link between long-run interest rates and Fed communications has weakened significantly pp Note:Based on Hillenbrand(

197、2021).Source:Federal Reserve,Goldman Sachs GIR.Could the market have overshot to the upside this time?We think so,for the same reason it undershot last cycle:investors may be over-extrapolating from temporary forces that affect aggregate demand but dont permanently impact the economy.We see two majo

198、r such forces,both of which are currently boosting demand and allowing the economy to withstand higher interest rates.The first is the fiscal deficit,which is currently around 5%of GDP wider than it has been on average when the unemployment rate has been this low.The second is the fact that broad fi

199、nancial conditions have not tightened commensurately with the funds rate,limiting the transmission of tighter monetary policy to the economy.In fact,risk sentiment has been so robust that our Financial Conditions Index(FCI)is around its average 2017-2019 level despite the much higher level of the fe

200、d funds rate today.These tailwinds will probably not last foreverthe US fiscal trajectory is unsustainable,and risk sentiment tends to mean-revert over time.When they fade,the Fed will have to offset the associated drag on demand with a lower policy rate to achieve its maximum employment and 2%infla

201、tion goals.The upshot is that the fed funds rate will,on average,probably settle below the level currently implied by long-term interest rates in future cycles.02468101990199520002005201020152020-8-6-4-2024619891994199920042009201420192024Cumulative change in 10y yieldCumulative change around FOMC m

202、eetingsCumulative change outside FOMC meetingsNeutral:from not as low,to not as high Manuel Abecasis,US Economist Email: Goldman Sachs&Co.LLC Tel:212-902-8357 hEl Goldman Sachs Global Investment Research 13 Top of Mind Issue 135 A long history of US rates 0%2%4%6%8%10%12%14%16%18%10y Treasury yieldH

203、istorical averagePanic of 1837followed by depression(1837-1843);key causes were restrictive lending policies in Great Britain,decline in cotton prices,speculative lending 1842:6.6%1792:4.7%1798:8.1%1821:4.6%1835:4.0%1862:6.7%Panic of 1857followed by depression(1857-1860);key causes were declining in

204、ternational economy,failure of a large US bank,and downturn in the railroad industryUS Civil War(1860-1865);US forced off of the gold standard1864:5.3%Goldcrash1869:4.2%1932:4.3%Great Depression(1929-1941)WWII(1939-1945)1945:1.7%WWI(1914-1918)1915:3.7%US abrogation of Bretton Woods1971:5.5%1981:15.8

205、%Fed Chairman Volcker increased the fed funds rate to a peak of 20%in 1981 to get double-digit inflation under control1984:13.9%Volcker hiked rates to restrain the economic recovery and ensure inflation would remain low2nd oil shock and Iran hostage crisis(1979-1980)1st oil shock(1973-1974)Low in po

206、licy rate cycle1986:7.0%Low in policy-rate cycle following 1991 recession1993:5.5%Unexpected rate-hiking cycle as economic growth improved following 1991 recession19947.9%Low in policy rate cycle following tech bubble bursting2003:3.4%Fed embarks on rate hiking cycle as inflation crept up with econo

207、my recovering from 2001 recession20044.7%2012:1.6%2008:2.3%Panic of 1796-1797;US real estate collapse and ensuing depression1790:8.7%Panic of 1819 following the end of the War of 1812 and mis-management of the Second Bank of the United StatesUS economic boomRecession followingoil shock1900:2.9%1920:

208、5.6%Depression of 1920-1921;Fed hiked rates to control post-war inflation;returningsoldiers weighed on wages1969:7.9%Fed hiked as economy heated up Vietnam war;US combat involvement(1965-1973)First Bank of theUnited States(1791)1913:FederalReserve System createdThe Great Railroad Strike1877:4.5%1907

209、:3.3%Panic of 1907;failed attempt to corner the market on the stock of a large company generated bank losses,a crisis of confidence in banks,and bank runsNote:Chart shows monthly averages.Source:Global Financial Data,Inc.,Federal Reserve Board,Haver Analytics,Goldman Sachs GIR.Covid pandemic Fed beg

210、ins easing as inflation coolsFed hikes rates to combat post-pandemic inflation2/5/20254.4%Yields begin to rise amid a hawkish repricing of Fed policy on inflation concerns,an upward reassessment of the neutral rate,and rise in term premiumhEl Goldman Sachs Global Investment Research 14 Top of Mind I

211、ssue 135 George Cole expects eventual cyclical relief in Europe and the UK to allow Bund and Gilt yields to retrace further The recent volatility in global bond markets,led by the US,has challenged the assumption that global central banks rate cuts will ease the way for markets to fund governments o

212、ver the next year.In most G10 economies,the prospect of significant budget consolidation following a sharp pandemic-related rise in deficits remains limited.Combined with central bank quantitative tightening,the amount of bonds supplied to the private sector remains near all-time highs,but at a much

213、 higher level of rates.This increase in the supply of bonds is not new,nor are the structural challenges from high debt burdens,elevated real rates,and persistent deficits.But,despite challenging fiscal arithmetic over the long run,investors were able to suspend disbelief as long as the prospect of

214、central bank rate cuts on the back of subsiding inflation offered cyclical relief.With the outlook for rate cuts now murkier,the recent volatility in global bond yields has reignited structural fiscal concerns.However,we ultimately think such concerns are overdone and expect the pendulum to swing ba

215、ck toward cyclical relief.Global bond supply remains near all-time highs G3 average bond supply(lhs,%of GDP)vs.average policy rate(rhs,%)Source:Goldman Sachs GIR.A repricing in the US Since the Fed initiated its cutting cycle last September,US rate expectations have risen substantially.Strong growth

216、,a resilient labor market,higher inflation,and a repricing of the US economic outlook following the US election have all contributed to higher US rates.This repricing has increased the term premium,as the large amount of bonds supplied to the market becomes harder to digest when,for any given price,

217、the demand for bonds falls due to rising expectations for growth,inflation,and policy rates(see pg.9).has dragged up global yields The rise in US rates has dragged up yields in all major markets over the last few months.But not all economies have experienced the same upward revision of their macroec

218、onomic outlook.Inflation expectations have increased in the UK,but growth expectations have fallen.And both have fallen in the Euro area over the last few months.As a result,expectations for ECB and BoE policy paths have not changed as much as those for the Fed.Since the September Fed meeting,expect

219、ations for one-year-ahead policy rates have declined by over four 25bp cuts in the US and just over two in the UK,while policy rate pricing has remained largely unchanged in the Euro area.and fiscal risk premia And yet,the move in long-end yields in European and UK bond markets has been substantial,

220、and in the case of the UK,has essentially matched the US over recent months.The relative stability in policy rate expectations coupled with a long-end selloff suggests an increase in bond risk premia.This,together with the rise in bond yields vs.swap rates,suggests that the market is demanding more

221、fiscal risk premium,particularly in Gilts,consistent with higher borrowing in last years UK budget.This points to the importance of the outlook for global yields in an environment of elevated bond supply.Spillovers from US bond markets to the rest of the world are nothing new but are particularly im

222、pactful for economies with weaker cyclical outlooks and weaker fiscal fundamentals.In this way,the twin deficits in the UK(current account and fiscal)are consistent with the high beta UK rates have had to the US.but concerns are overdone Despite the poor performance of Gilts as of late,we think worr

223、ies about substantial fiscal and inflationary risk in the UK are overdone.So far,GBP has not weakened significantly vs.USD,consistent with most other G10 currencies.And many economies,including the Euro area,have experienced some combination of higher yields and weaker currencies,even if to a lesser

224、 degree than the UK.Risk premium is also rising in Bunds ahead of potential fiscal expansion following the upcoming German election,though we think this will prove modest,if not underwhelming,vs.current market pricing.Euro area term premium has decoupled from inflation risk GS estimates of EUR term

225、premium(lhs,bp)vs inflation risk premium(rhs,bp)Source:Goldman Sachs FICC and Equities,Goldman Sachs GIR.The pendulum to swing back again All that said,limits exist to how far fiscal risk pricing can overshoot the growth and inflation outlook.So,we expect the pendulum to swing back again.We expect t

226、he path for inflation and growth in the UK and Euro area will be consistent with faster central bank cuts.The path for US and global interest rates will also likely be more benign and so is unlikely to exert meaningful spillovers,which should allow 10y Bund and Gilt yields to reach our forecasts of

227、1.9%and 4.0%,respectively,by end-2025.But whether the cyclical overtakes the structural remains key to watch.George Cole,Head of European Rates Strategy Email: Goldman Sachs International Tel:44-20-7552-1214-10123456-20246810200620082010201220142016201820202022202412m rolling net supply(lhs)Average

228、G3 policy rate(rhs)-60-40-20020406080100120140-200-150-100-50050100150Jan-20Nov-20Sep-21Jul-22May-23Mar-24Jan-25EA term premium(lhs)EA inflation risk premium(rhs)Cyclical relief vs.structural challenges hEl Goldman Sachs Global Investment Research 15 Top of Mind Issue 135 Alongside the rise in US yi

229、elds,sovereign bond yields have risen across much of the G10 10-year sovereign bond yields,%largely driven by a reset higher in term premium Change in GS 10y term premium estimates,bp Source:Bloomberg,Goldman Sachs GIR.Source:Goldman Sachs FICC and Equities,Goldman Sachs GIR.The upward pressure has

230、been most keenly felt by Gilts amid concerns about rising UK deficits UK deficit expectations(lhs,%of GDP)vs.2y yields(rhs,%)US-Bund spreads have overshot growth and policy fundamentals,suggesting the rate selloff reflects spillovers from US yields 10y UST-Bund PCA decomposition,bp Source:Consensus

231、Economics,Goldman Sachs FICC and Equities,GS GIR.Source:Bloomberg,Goldman Sachs FICC and Equities,Goldman Sachs GIR.However,the pickup in core rates has not translated into sovereign spread widening,unlike in past instances of bearish impulses from the US 10y EA sovereign spreads(lhs,bp)vs.10y EUR O

232、IS(rhs,%)Meanwhile,Chinese government bond yields have fallen,and are now lower than Japanese government bond yields for the first time in over two decades 30y JGB and CGB yields,%Source:Goldman Sachs FICC and Equities,Goldman Sachs GIR.Source:Haver Analytics,Goldman Sachs GIR.Special thanks to GS R

233、ates Strategy team for charts.-1012345Jan-15Jan-17Jan-19Jan-21Jan-23Jan-25UKGermanyFranceCanadaJapan-40-2002040608011/4/2411/18/2412/2/2412/16/2412/30/241/13/25UKUSEU-101234567-2024681012142001200420072010201320162019202220251y-ahead deficit expectations(lhs)UK 2y yield(rhs)-20-1001020304050607080Se

234、p-24Oct-24Oct-24Nov-24Dec-24Dec-24Jan-25US-EU growth differentialTrump oddsUS-EU Jan 2025 OIS spreadResidualUS-EU 10y bond spread-1.0-0.8-0.5-0.30.00.30.5-80-60-40-2002040Jul-23Oct-23Jan-24Apr-24Jul-24Oct-24Jan-25 10y Bonos-Bund spread(lhs)10y BTP-Bund spread(lhs)10y EUR OIS(rhs)01234562006200920122

235、01520182021202430y JGB yield30y CGB yieldA snapshot of global bond markets hEl Goldman Sachs Global Investment Research 16 Top of Mind Issue 135 Vickie Chang argues that,while unusual in the context of a monetary easing cycle,the recent rise in yields is not unprecedented While now off its peak,the

236、10-year US Treasury yield has risen by more than 100bp in recent months even as the Fed has lowered the funds rate by 100bp since the start of its rate cutting cycle last September.How unusual is this move?While we find that the speed and size of the bond selloff is unusual in the context of histori

237、cal Fed cutting cycles,it is not unprecedented,and the rise in yields makes sense in the context of the current macro environment.But the market outcome from here hinges on the inflation trajectory.A historical precedent Median asset performance around the first Fed cut during easing cycles in the p

238、ast 40 years1 suggests that the rally in US equities since September is in line with the historical experience in non-recessionary cutting cycles,but the rise in 10-year yields looks unusual.However,it is not unprecedentedyields rose by comparable amounts in the 19812,1995,and 1998 easing cycles.Ris

239、ing yields look unusual in the context of historical non-recessionary Fed cutting cycles.Change in 10y US Treasury yield,index,day of first Fed cut=0 although they are not unprecedented Change in 10y US Treasury yield,index,day of first cut=0 Source:Goldman Sachs GIR.1 The initial ten cycles we focu

240、sed on began in 1984,1987,1989,1990,1995,1998,2001,2007,2019,and 2020.We classify each cutting cycle as either associated with recession,or as non-recessionary episodes motivated by a“growth scare”or a“normalization”of monetary policy.2 We excluded the 1981 cycle from our original analysis as this w

241、as before the Fed conducted monetary policy by targeting the funds rate.3 Our macro framework uses the co-movement of US equities and bonds to assess how the market is shifting its views on US growth and policy.Shifting growth and policy expectations History is a useful but limited guide,and what ma

242、tters most for understanding asset market shifts is to understand their macro drivers.Our macro framework3 suggests that over the last few months,the market has priced a sharp growth upgrade,accompanied in more recent weeks by a hawkish policy shock that has now somewhat reversed.Heading into the fi

243、rst cut,a meaningful rise in the unemployment rate sparked recession fears and markets priced a meaningful growth downgrade.Several months on,the labor market has held firm and the Fed appears to have eased into a resilient economy.The market upgraded its growth outlook furtherand intensified its do

244、ubts about the appropriateness of further easingin the wake of the US election outcome.In that context,the fundamental macro shifts that the market has priced seem broadly sensible.A growth upgrade,and then a hawkish policy shock Cumulative growth and policy shocks,index Source:Goldman Sachs GIR.Two

245、 potential outcomes Growth and policy pricing during the three historical episodes in which yield moves resembled the current cycle suggests two potential outcomes ahead.The first is the possibility that,as in 1995 and 1998,the Fed has eased into a non-recessionary economy,and so growth pricing will

246、 hold up or even improve.The second is the possibility that,as in the early 1980s,the Fed eases but discovers that the inflation problem has not abated and re-tightens policy,resulting in a large hawkish policy shock that eventually translates into a negative growth shock as the economy slows furthe

247、r.and we favor the more supportive one The first is a supportive story for risk assets,while the second is not.Our forecasts are more consistent with the first story.While markets understandably remain focused on the risks of sticky inflation,those risks look much milder than in the early 1980s,and

248、we believe that an inflation resurgence is unlikely,absent broad-based tariffs.Over the medium term,this should remain a supportive backdrop for risky assets.Vickie Chang,Senior Global Markets Strategist Email: Goldman Sachs&Co.LLC Tel:212-902-6915-6m06m12m24m-2.0-1.5-1.0-0.50.00.51.01.52.0Normaliza

249、tion(median)Growth Scare(median)Recession(median)Current-6m06m12m24m-4-3-2-10123198119951998CurrentJan-24Mar-24May-24Jul-24Sep-24Nov-24Jan-25-15-10-50510152025Cumulative growth shocksCumulative policy shocksPositive growth shockHawkish policy shockDecember FOMCJuly payrolls printUS electionRising yi

250、elds and Fed cuts:a precedent hEl Goldman Sachs Global Investment Research 17 Top of Mind Issue 135 EquityEquity David Kostin and team Q:How vulnerable are equities to a renewed rise in US Treasury yields?A:The equity markets response to a shift in interest rates depends on the speed and drivers of

251、the rates move.Over the past 20 years,stocks have generally performed well alongside gradual increases in rates.However,equities sold off by an average of 4%when real bond yields rose by two standard deviations or more in a month.In todays terms,a two standard deviation monthly move would equate to

252、a roughly 60bp increase in yields,similar to the magnitude of the rise in rates between early December and mid-January.Equities have typically appreciated alongside rising bond yields when an improvement in economic growth expectations drove the yield moves.However,equity returns were typically weak

253、er than average when hawkish Fed policy or other drivers unrelated to the growth outlook pushed yields higher.Our top-down earnings model suggests that modest changes in yields should have a roughly neutral net impact on earnings.Our macro model of valuation suggests that a 50bp move in real 10-year

254、 Treasury yields would shift the S&P 500 fair-value P/E by 3%,all else equal.So,a gradual rise in Treasury yields owing to improving growth expectations would likely lead equities to rise as earnings growth would likely outweigh a modest decline in valuations.However,a sharp increase in yields,or on

255、e driven by policy concerns,would likely weigh more substantially on elevated current equity multiples.CreditCredit Lotfi Karoui and team Q:How vulnerable is corporate credit to a renewed rise in US Treasury yields?A:When it comes to the spillover from rates to credit spreads,not all rate selloffs a

256、re created equal.The drivers of the higher US Treasury yields matter more for spreads(and for risky assets more broadly)than the move itself.For most of 2022 and 2023,the combination of higher rates and wider spreads was the byproduct of an abrupt repricing of upside inflation risks and a Fed reacti

257、on function that was less sensitive to downside growth risks.But the most recent move higher in Treasury yields had a very different flavor,reflecting the continued strong growth backdrop more so than fear of inflation reacceleration.The friendlier nature of the drivers of the recent leg higher in r

258、ates largely explains why corporate bond spreads have remained anchored around their recent tights.Barring any disorderly price action,a growth-driven selloff that would push 10-year Treasury yields materially higherin the vicinity of 5%would likely be well-digested by credit spreads,as was the case

259、 in the first two weeks of this year.By contrast,should Treasury yields move higher owing to growing concerns about the risk of an inflation reacceleration and hawkish shift in the Feds reaction function,spreads would almost surely move wider,with the low end of the quality spectrum underperforming,

260、as was the case in 2022 and most of 2023.With any potential move higher in rates likely to be growth-driven,we think the recent negative correlation between rates and spreads should persist.This negative correlation regime is in many ways a return to normalcy.It also provides total return investors

261、with a solid embedded hedge against a potential risk-off episode fueled by growth concerns,as the damage from wider spreads would likely be offset by declining Treasury yields.That said,any sudden policy shifts toward larger or universal tariffs could see the correlation between spreads and yields t

262、urn positive again,which would weigh on total returns.Q&A:risky asset impacts of higher rates Equities struggled amid the recent bond selloff,and rebounded as this move reversed Equal-weight S&P 500(lhs,index),10y US Treasury yield(rhs,%)Source.Goldman Sachs GIR.Credit spreads remained resilient ami

263、d the recent move higher in Treasury yields USD high-yield OAS(lhs,bp),10y US Treasury yield(rhs,%)Source.Bloomberg,Goldman Sachs GIR.3.6%3.8%4.0%4.2%4.4%4.6%4.8%5.0%70007100720073007400750076007700Oct-2024Nov-2024Dec-2024Jan-2025Feb-2025Equal-weight S&P 500(lhs)10y UST yield(rhs)0123456020040060080

264、01000120014001600180020002003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025USD HY OAS(lhs)10y UST yield(rhs)hEl Goldman Sachs Global Investment Research 18 Top of Mind Issue 135 Christian Mueller-Glissmann argues that higher bond yields argue for increased allocations to bonds in multi-asse

265、t portfolios Higher bond yields has raised questions about the optimal allocation to bonds in multi-asset portfolios.We believe that the nature of the bond yield reset as well as current elevated equity valuations argue for a higher allocation to bondsand a lower allocation to equitiesin multi-asset

266、 portfolios,though how much higher will depend on the structural macro backdrop.Yield increases are not created equal Equities ability to digest rising bond yields depends on the speed and drivers of the rate moves as well as starting valuations.Equities tend to digest rising bond yields well if yie

267、lds increase gradually from low levels owing to better growth but poorly if yields increase sharply driven by hawkish monetary policy shocks(e.g.,high and rising inflation)or other drivers unrelated to the growth outlook.Such was the case in 2022,when 60/40 portfolios suffered one of the largest dra

268、wdowns in 100 years.The recent reset in bond yields more closely resembles the latter scenario.Markets have rethought their expectations for the global path of monetary policy and become more concerned about fiscal policy and bond supply,driving longer-dated bond yields close to post-Global Financia

269、l Crisis(GFC)highs over a relatively short period.The accompanying selloff in US equities closely mirrored the typical experience of sharp rate rises.While these sharps moves have since retraced somewhat and we expect equities to fare better ahead on continued solid growth and a likely decline in 10

270、y bond yields(see pg.9)from here,equities would likely suffer if 10y Treasury yields rose above 5%in the absence of positive growth news.A more favorable bond value proposition So,what does that mean for the optimal portfolio mix ahead?According to Markowitz portfolio theory,the optimal portfolio we

271、ight of an asset depends on the assets prospective relative return and risk,diversification benefits,and return vs.cash.The nature of the recent rise in yields generally paints a more favorable picture for bonds across all these dimensions,arguing for a higher allocation to bonds in multi-asset port

272、folios.Indeed,higher bond yields owing to reduced Fed easing expectations alongside higher bond term premia suggest a better chance of bonds outperforming cash.And under our benign macro baseline of continued inflation normalization,less positive equity/bond correlations should render bonds a more e

273、ffective hedge against equity drawdowns.Relative risk also favors bonds10y Treasury yields rising above 5%would only have a small negative impact on bonds but could weigh materially on equities given the current unfriendly drivers(i.e.,higher term premia and hawkish policy repricing).However,the mos

274、t important driver of the optimal asset mix remains the relative return of equities vs.bonds.Given currently elevated equity valuations,the prospects for attractive equity vs.bond returns appear more limited,particularly over longer investment horizons when valuations become a more binding constrain

275、t.This marks a big shift from the post-Covid recovery period,when equities materially re-rated vs.bonds after over two decades of de-rating,driving the optimal asset mix to 100%equities at one point.Equity/bond correlations tend to be less positive when inflation is low and anchored Source:Haver Ana

276、lytics,Goldman Sachs GIR.More balanced portfolio in(almost)all macro scenarios Using our strategic tilting framework,we estimate the long-term returns for equities and bonds based on structural macro conditions1,finding that,in most long-term scenarios,the optimal equity allocation is lower.This sug

277、gests a more balanced optimal portfolio than over the last few yearssince the Covid crisis,close to 100%equities was the optimal portfolio with little benefit from bond allocations.However,outside of the most bullish scenario,both equity and 60/40 10-year return forecasts are below the average since

278、 1950,highlighting the long-term return challenge from elevated US equity valuations.The highest equity allocation would occur in a reflation scenario in which bonds offer a worse risk/reward vs.both equities and cash.While this might not be the most likely scenario over the medium term,the new US a

279、dministrations policy agenda may mean that markets keep repricing the potential for a prolonged reflation scenario in the near term.A lower optimal equity allocation in most structural scenarios 10-year return scenarios as a function of different structural scenarios Source:Haver Analytics,Goldman S

280、achs GIR.Christian Mueller-Glissmann,Head of Asset Allocation Research Email:christian.mueller- Goldman Sachs International Tel:44-20-7774-1714 1 Using varying assumptions for trend GDP growth,inflation,and S&P 500 ROE,we derive six scenarios for the next decade ranging from a very positive structur

281、al Goldilocks scenario that includes an AI boost to GDP growth and the S&P 500 ROE to a stagflation scenario with weaker growth,higher inflation,and the ROE reverting to its average level since the 1990s.-1.0-0.8-0.6-0.4-0.20.00.20.40.60.81.0-4%-2%0%2%4%6%8%10%12%14%1-year equity/bond correlation1-y

282、ear CPISince 1998From 1970 to 1998Current0%10%20%30%40%50%60%70%80%90%100%-4%-2%0%2%4%6%8%10%12%14%GoldilocksGoldilocks+AI boostReflationStagnationConcentrationfrustrationStagflationAvg returnsince 1950S&P 500US 10y bondsERPOptimal portfolio:equity weight(rhs)3.0%2.0%20%4.0%2.0%22%3.0%3.0%18%1.5%2.0

283、%18%2.5%2.5%16%1.5%5.0%15%3.1%3.6%13%Scenarios for the next 10 yearsAvg.since 195010y real GDP:10y inflation:LTM ROE in 10y:Optimal portfolios amid higher yields hEl Goldman Sachs Global Investment Research 19 Top of Mind Issue 135 Summary of our key forecasts hEl Goldman Sachs Global Investment Res

284、earch 20 Top of Mind Issue 135 Current Activity Indicator(CAI)GS CAIs measure the growth signal in a broad range of weekly and monthly indicators,offering an alternative to Gross Domestic Product(GDP).GDP is an imperfect guide to current activity:In most countries,it is only available quarterly and

285、is released with a substantial delay,and its initial estimates are often heavily revised.GDP also ignores important measures of real activity,such as employment and the purchasing managers indexes(PMIs).All of these problems reduce the effectiveness of GDP for investment and policy decisions.Our CAI

286、s aim to address GDPs shortcomings and provide a timelier read on the pace of growth.For more,see our CAI page and Global Economics Analyst:Trackin All Over the World Our New Global CAI,25 February 2017.Dynamic Equilibrium Exchange Rates(DEER)The GSDEER framework establishes an equilibrium(or“fair”)

287、value of the real exchange rate based on relative productivity and terms-of-trade differentials.For more,see our GSDEER page,Global Economics Paper No.227:Finding Fair Value in EM FX,26 January 2016,and Global Markets Analyst:A Look at Valuation Across G10 FX,29 June 2017.Financial Conditions Index(

288、FCI)GS FCIs gauge the“looseness”or“tightness”of financial conditions across the worlds major economies,incorporating variables that directly affect spending on domestically produced goods and services.FCIs can provide valuable information about the economic growth outlook and the direct and indirect

289、 effects of monetary policy on real economic activity.FCIs for the G10 economies are calculated as a weighted average of a policy rate,a long-term risk-free bond yield,a corporate credit spread,an equity price variable,and a trade-weighted exchange rate;the Euro area FCI also includes a sovereign cr

290、edit spread.The weights mirror the effects of the financial variables on real GDP growth in our models over a one-year horizon.FCIs for emerging markets are calculated as a weighted average of a short-term interest rate,a long-term swap rate,a CDS spread,an equity price variable,a trade-weighted exc

291、hange rate,andin economies with large foreign-currency-denominated debt stocksa debt-weighted exchange rate index.For more,see our FCI page,Global Economics Analyst:Our New G10 Financial Conditions Indices,20 April 2017,and Global Economics Analyst:Tracking EM Financial Conditions Our New FCIs,6 Oct

292、ober 2017.Goldman Sachs Analyst Index(GSAI)The US GSAI is based on a monthly survey of GS equity analysts to obtain their assessments of business conditions in the industries they follow.The results provide timely“bottom-up”information about US economic activity to supplement and cross-check our ana

293、lysis of“top-down”data.Based on analysts responses,we create a diffusion index for economic activity comparable to the ISMs indexes for activity in the manufacturing and nonmanufacturing sectors.Macro-Data Assessment Platform(MAP)GS MAP scores facilitate rapid interpretation of new data releases for

294、 economic indicators worldwide.MAP summarizes the importance of a specific data release(i.e.,its historical correlation with GDP)and the degree of surprise relative to the consensus forecast.The sign on the degree of surprise characterizes underperformance with a negative number and outperformance w

295、ith a positive number.Each of these two components is ranked on a scale from 0 to 5,with the MAP score being the product of the two,i.e.,from-25 to+25.For example,a MAP score of+20(5;+4)would indicate that the data has a very high correlation to GDP(5)and that it came out well above consensus expect

296、ations(+4),for a total MAP value of+20.Glossary of GS proprietary indices hEl Goldman Sachs Global Investment Research 21 Top of Mind Issue 135 Special Issue 2024:4 themes in charts December 18,2024 Issue 118 US-China:more decoupling ahead?May 1,2023 Issue 134 Will Chinas policy stimulus be enough?D

297、ecember 11,2024 Issue 117 All about bank(panic)s April 3,2023 Issue 133 Market concentration:how big a worry?November 25,2024 Issue 116(Japanese)Bonds,Bonds,Bonds February 23,2023 Issue 132 Post-election economic policies October 21,2024 Issue 115 The Bigger Worry:Growth or Inflation?January 27,2023

298、 Issue 131 Is the Fed behind the curve?September 3,2024 Special Issue 2022:3 themes in charts December 15,2022 Issue 130 How investable is Europe?August 1,2024 Issue 114 The Winter of Cryptos Discontents December 9,2022 Issue 129 Gen AI:too much spend,too little benefit?June 25,2024 Issue 113 Centra

299、l Bank Tightening:what could break?November 11,2022 Issue 128 Central bank divergence room to run?May 21,2024 Issue 112 Chinas Congress:an inflection point?October 11,2022 Issue 127 Weighing the GLP-1 market April 12,2024 Issue 111 Will slaying inflation require recession?September 13,2022 Issue 126

300、 Global transit&trade:in rough waters March 12,2024 Issue 110 Food,Fuel,and the Cost-of-Living Crisis July 28,2022 Issue 125 2024:The year of elections February 1,2024 Issue 109 Equity bear market:a paradigm shift?June 14,2022 Issue 124 Middle East risks December 5,2023 Issue 108(De)Globalization Ah

301、ead?April 28,2022 Issue 123 US outperformance:at a turning point?October 30,2023 Issue 107 Stagflation Risk March 14,2022 Issue 122 Commercial real estate risks October 9,2023 Issue 106 Russia Risk February 24,2022 Issue 121 Corporate credit concerns August 10,2023 Issue 105 2022:The endemic year?Ja

302、nuary 24,2022 Issue 120 Generative AI:hype,or truly transformative?July 5,2023 Special Issue 2021:4 themes in charts December 17,2021 Issue 119 Daunting debt limit dynamics May 22,2023 Issue 104 Investing in Climate Change 2.0 December 13,2021 Source of photos:,US Department of State/Wikimedia Commo

303、ns/Public Domain.Top of Mind archive:click to access hEl Goldman Sachs Global Investment Research 22 Top of Mind Issue 135 Disclosure Appendix Reg AC We,Allison Nathan,Jenny Grimberg,Ashley Rhodes,George Cole,William Marshall,David Mericle,Christian Mueller-Glissmann,Vickie Chang,and Manuel Abecasis

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