Goldman Sachs urges lower spending to curb rising borrowing costs
Goldman Sachs co-CEO Anthony Gutman has urged governments in the Western world to reduce spending as rising borrowing costs continue to pose a significant challenge. The benchmark US 10-year Treasury yield recently traded near historic highs, hovering around 5.27%. Similar pressures are being felt in bond markets across the UK, France, Japan, and Australia, driven by surging energy costs and increasing debt levels.
Gutman emphasized the need for lower fiscal deficits to combat inflation and manage borrowing costs more effectively. Speaking to CNBC, he highlighted the global debt burden, stating, "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." He called for a combination of reduced spending and higher growth to address these issues, especially amid upcoming elections in Europe that are adding to policy uncertainty.
US bond yields have surged this year, with the 10-year yield briefly exceeding 5.3% before easing slightly to 5.27%. The 30-year yield also reached a peak of 5.7% before cooling down. A separate Goldman Sachs report warned that persistently higher interest rates could strain US government finances, projecting the debt-to-GDP ratio could hit 132% by 2035, up 10 percentage points from current levels. The firm anticipates one more Federal Reserve rate hike in December, followed by three cuts from the second half of 2027.
Meanwhile, the 10-year yield in Japan hit a three-decade high, while the UK 10-year gilt spiked to 5.5% before dropping to 5.3%. France's 10-year yields stood at 4.74% on Tuesday. The sell-off in bond markets is largely attributed to rising government debt and fears of further rate hikes to curb inflation. Conflicts in the Middle East have exacerbated concerns by driving up crude prices, which could fuel further inflation. The US national debt has surpassed $40 trillion, compounded by a spending boom in artificial intelligence that is intensifying borrowing costs.