A senior executive at Goldman Sachs says bonds are now more attractive than stocks as rising rates and geopolitical uncertainty reshape market dynamics.
On the firm’s “The Markets” podcast, Lindsay Rosner, head of multisector investments at Goldman Sachs Asset Management, points out recent volatility caused in part by an energy shock related to the conflict in Iran.
That shock has pushed yields higher and forced markets to reassess expectations about central bank policies.
Rosner said the bond market is reacting to inflation risks and changing expectations around the Federal Reserve, with investors increasingly pricing in rate cuts or even potential rate hikes.
Despite that uncertainty, she says that current conditions create attractive opportunities in fixed income, especially as interest rates have risen and credit spreads have widened modestly.
“So when I think about what happened – we’ve been dealing with this conflict for almost a month – I have to think to myself: What would I rather be: a bond or a stock? And I’d rather be a bond. And maybe that’s not surprising as a bond investor, but I try to be objective.
The reason why I think you want to be a bond is because when growth impacts start to kick in, you want to be higher up in the capital structure. A bond is certainly above shares and is less based on gangbuster growth.
We believe that there will still be above-trend growth in the US and the rest of the world, despite everything that is happening. But a bond is a good place to be, and we’ve had all this yield creation as base rates have moved higher and spreads have widened a little bit. This together has resulted in real returns. It’s extensive and it’s interesting here and I think you should take advantage of it.”
Rosner adds that while bonds have not always acted as a reliable hedge during inflation-induced uncertainty, they remain attractive in scenarios where growth slows and central banks eventually move back toward easing.
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