Anshul Sehgal, Global Co-Head of Fixed Income, Currencies and Commodities at Goldman Sachs, believes that bonds with yields of 5% and above are not the best deal right now, and he prefers AI infrastructure as a more asymmetric bet. He expressed his opinion a few days after the Federal Reserve raised rates.
In the Goldman podcast 'The Markets,' Sehgal noted that 30-year Treasury bonds, known as long-term bonds, have been hovering around 5% for weeks. Clients want to buy them at yields of 5% and above, but he doesn't see much growth potential. After the recording, the yield continued to rise and reached 5.56% on September 29, a new 52-week high. Sehgal links the pressure on the long end to structural reasons: retiring baby boomers are buying fewer long-term bonds, and large long-term borrowings related to AI are overloading the market. These factors explain why the sell-off may continue even without a new inflation shock. Additionally, concerns about the sustainability of US debt reduce investors' willingness to hold the long end.
According to Sehgal, rising yields do not necessarily disprove his thesis – they rather show the limited benefit of holding such securities, while the risk to his AI bet is that more expensive long-term borrowings weigh on highly leveraged companies.
He calls AI computing power, data centers, and Neoclouds – cloud providers built to lease such capacities – an asymmetric deal. "I believe the asymmetric expression is long positions in computing," Sehgal said. He acknowledges that these are leveraged bets: savers receiving a higher interest rate have effectively financed the construction of AI infrastructure, making stocks more leveraged than a year ago. Nevertheless, he believes such investments can multiply in value, while the broader stock market looks less certain.
According to him, the Fed presents the rate hike on September 16 as a catch-up measure after five years of exceeding the inflation target. According to Schwab, 16 out of 19 Fed officials expect another increase this year. Fed Chairman Kevin Warsh emphasized three times that the regulator is removing some stimuli, not moving to a restrictive policy. Sehgal argues that government interest payments go to capital, not workers, so higher rates restrain consumer spending – a risk for the broader stock market. He calls concerns about debt sustainability a distraction.
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