Goldman Sachs: Equity markets have priced in interest rate cuts, but bond markets are still keeping the 10-year US Treasury real yield at a high of 2.5%. Eventually, one side will have to "admit it's wrong."

The Goldman Sachs Vitali Meschoulam team reports that the biggest contradiction in the current market is that risk assets such as equities, credit, emerging market carry trades, and gold have already priced in future easing, anticipating a eventual decline in real interest rates; however, the bond market has not confirmed this expectation, maintaining the 10-year US real interest rate at a high level of approximately 2.5%. Goldman Sachs believes that ultimately, either bond yields must fall, or risk assets must decline; one of the two must "admit fault." The report analyzes that five major structural factors are behind the persistent high real interest rates: fiscal pressure, questionable policy credibility, rebuilding of term premium, increased physical capital demand driven by AI and data center capital expenditures, and rising oil prices. Goldman Sachs suggests not actively fighting the carry trade narrative at present, but controlling position sizes and viewing whether the 10-year US real yield can fall from 2.5% to 2.00%–2.25% as a key observation indicator.