Goldman Sachs has identified long-term interest rates, particularly 30-year Treasury bonds, as the most important short-term risk factor for markets. Three forces are currently converging: persistent inflation expectations, increased Treasury supply due to widening US deficits, and growing concerns about long-term fiscal sustainability. A 100 basis point rise in 30-year yields would trigger a price decline of approximately 15 to 20 percent on a zero-coupon bond of that maturity. This situation particularly threatens traditional 60/40 portfolios, whose diversification function could vanish if stocks and bonds decline simultaneously.
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