Navigating the volatility in global bond markets

Bond yields around the world have been exceptionally volatile in recent weeks. So what's behind the sharp moves in global bonds, and what could they mean for the economy and for investors? I'm Alison Nathan, and this is Goldman Sachs Exchanges. Today, I'm joined by Johnny Fine, global head of investment grade in Goldman Sachs Global Banking and Markets, and by George Cole, head of European rates strategy for Goldman Sachs Research. Johnny is here in our New York studio, and George is joining us from our London office. George, Johnny, good to talk to you. Nice

to be back. Thanks,

Alison.

So, George, let's start with you. Global bonds have been markedly, and I would say unexpectedly no investor that I know of was expecting this level of volatility heading into the new year. So help us understand what's driven the recent moves. Yeah.

Thanks, Alison. So if we go back over a kind of multi month period since, say, around about the September period of being very substantial moves in global bond markets, US yields moving about a 100 basis points higher at the 10 year point on the curve, a similar move in the UK, maybe about half that in European yields. And all of that is really, I think, due to a revision of expectations on growth, on inflation, and on the monetary policy path that is expected particularly from the Fed. Now part of that is because the US dataset has been better. You've seen improvement in things like the labor

And so, Johnny, is that what you're seeing, just this sense that there's a digestion problem brewing in the bond market? I

think it's a combination of things. And I think those things are all rooted in fundamentals, at least in the near term, uncertainty, and fear. And the fundamentals in the near term are what's the data telling us. So obviously, it's very unusual. We began a cutting cycle in September and 10 year yields are almost a 100 basis points higher than they were than when the Fed started. That wasn't on anyone's bingo card coming into 2025 or certainly the back end of last year. But the fundamentals, as George mentioned, have been good. Growth dynamics have been good. The labor market has been strong an

And so term premium, by the way, is just what investors demand for holding the risk of sovereign bonds. Right?

Further out the curve. Yeah. Exactly. Above and beyond what might be thought to be the fundamental value of the yield curve at that point in time.