Goldman Sachs co-CEO Anthony Gutman has called for lower government spending as countries across the Western world struggle with rising borrowing costs.
The benchmark US 10-year Treasury yield has been trading near historic highs, with yields trading around 5.27%.
Bond markets in countries like the United Kingdom, France, Japan and Australia are also under pressure, with yields going up consistently due to surging energy costs and rising debt.
Gutman believes lower fiscal deficits could help countries fight inflation and keep borrowing costs in check.
‘World awash in debt’
Speaking to CNBC, Gutman said that the world was “awash in debt” and stressed fiscal prudence.
“We all know what’s driving it. We’re focused on energy costs, we’re focused on the labor market. But fundamentally, what do we need to solve this problem? We need lower fiscal deficits, and we need more durable economic growth,” Gutman told the publication.
He said that he hoped to see a combination of lower spending and higher growth.
His comments came in the backdrop of an upcoming election cycle in Europe, which he said is contributing to the uncertainty in policy, making the challenge even tougher.
Why are yields going up?
US bond yields have risen sharply this year, and several countries have seen a similar sell-off.
The 10-year yield in the US shot past 5.3% on Monday, reaching its highest levels since April 2002, before easing slightly to hit 5.27% on Tuesday.
The 30-year yield has also seen a historic surge, reaching as high as 5.7% before cooling down a few basis points.
A separate Goldman Sachs report warned that persistently higher interest rates could further strain US government finances.
Strategist Pierfrancesco Mei said the debt-to-GDP ratio could reach 132% by 2035, 10 percentage points above its baseline.
Goldman expects one more Fed hike in December, followed by three cuts from the second half of 2027.
The 10-year yield in Japan has also risen to a three-decade high, while the UK 10-year gilt had shot up to 5.5% before coming down to 5.3%. France is also seeing a sell-off, with 10-year yields at 4.74% on Tuesday.
Bond markets in several Western countries are witnessing a sharp sell-off mainly due to ballooning government debt in these countries coupled with fears of rate hikes to tame inflation.
Conflicts in the Middle East have led to higher crude prices, increasing the risk of a surge in inflation, which is already above targets.
US Federal Reserve last month hiked its rates for the first time in three years to cool down the economy, with the EU and Japan following suit.
With many believing further rate hikes are imminent, yields have continued to rise.
Meanwhile, US national debt has surpassed $40 trillion and has been consistently rising.
This comes amid a historic spending boom in artificial intelligence, with the competition for debt further increasing borrowing costs. This has triggered concerns regarding the sustainability of such spending.
This post Rising yields flagged as key concern as Goldman Sachs bats for lower spending may be modified as updates unfold
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