Higher global bond yields are beginning to test the foundations of the risk-on trade that has supported equities, credit and crypto-linked assets, with Goldman Sachs warning that a sustained period of elevated borrowing costs could shave more than half a percentage point from US growth if Treasury yields remain near current levels.
Goldman’s baseline forecast assumes the 10-year US Treasury yield eases to 4.4% by year-end, producing a more limited drag of about 0.2 percentage points on 2027 GDP growth. A less benign outcome, in which yields stay around prevailing levels, would increase the estimated hit to more than 0.5 percentage points.
That distinction places markets in a sensitive position. Higher government bond yields raise the return available on assets regarded as relatively safe, while also increasing financing costs for households, companies and the federal government. Crypto assets do not have a direct mechanical relationship with Treasury yields, but they have often traded as high-volatility risk assets during periods when liquidity tightens and discount rates rise.
High yields feed into housing, consumption and investment
Goldman economists Joseph Briggs and Johan Allen estimated that a 100-basis-point increase in interest rates cuts housing investment across major advanced economies by roughly 6%. Their rule-of-thumb framework also suggests consumer spending falls by around 0.2% and business capital expenditure by about 1.8%, resulting in a combined GDP drag near 0.6 percentage points.
The transmission is already familiar in the US housing market. Mortgage rates above 7% make new home purchases more expensive, limit refinancing activity and can deter construction. A slower housing sector then affects demand for appliances, furniture and other durable goods.
Goldman’s scenario analysis linked weaker durable-goods demand to a roughly 0.2 percentage-point drag on consumption. It also estimated that refinancing costs for companies outside the artificial-intelligence sector could create a 0.3 percentage-point headwind to capital-expenditure growth.
The firm’s policy baseline assumes the Federal Reserve raises rates once in December before delivering three cuts in the second half of 2027. That path depends on inflation slowing sufficiently for the central bank to reduce rates without reigniting price pressures. US consumer-price inflation was cited at 3.7% in September, a level that would leave policymakers cautious about declaring victory over inflation.
Fiscal pressure adds to the Treasury market challenge
The rise in yields is colliding with a larger US debt burden. The national debt has crossed $40 trillion, according to the figures cited in the source material, while the 10-year Treasury yield was trading near 5.21%.
Goldman’s analysis projected US debt could reach 124% of GDP by 2035 under its baseline assumptions. If interest rates remain at current levels, the debt-to-GDP ratio could rise to 132%, because refinancing maturing government debt at higher rates would steadily increase federal interest costs.
Mark Zandi, chief economist at Moody’s Analytics, described the US economy as “fragile” rather than resilient and put the chance of a more serious economic breakdown at roughly one-third. He cited fiscal deficits above 6% of GDP, a primary deficit above 3% and federal interest costs already exceeding $1 trillion annually.
Zandi estimated the probability of a severe bond-market selloff at about one-quarter. Such an event would raise Treasury yields further and leave policymakers with fewer easy choices: higher rates would tighten financial conditions, while fiscal restraint could slow demand.
AI spending has become a growth buffer and a vulnerability
Artificial-intelligence investment has helped offset weakness elsewhere in the economy, according to Zandi’s estimates. He said AI-related activity accounts for roughly 0.6 to 0.7 percentage points of approximately 2% real GDP growth, leaving non-AI growth closer to 1% to 1.5%.
That concentration means a pullback in AI spending could have consequences beyond technology shares. Zandi argued that if elevated rates persist for another one or two quarters, AI could become the first major area to crack, particularly if declining AI-related equity valuations reverse the wealth effects that have supported consumption.
Goldman’s credit research offers a more reassuring view of the largest AI spenders’ ability to finance their expansion. It said more than two-thirds of AI capital expenditure comes from hyperscalers rated between AAA and AA. Those issuers have an average interest-coverage ratio of 27.7 times and net leverage of 0.5 times, giving the largest companies considerable room to absorb higher borrowing costs.
The risk sits further down the chain, where suppliers, data-center operators and smaller technology companies may have less financial flexibility. Tobias Adrian, financial counsellor and director of the International Monetary Fund’s Monetary and Capital Markets Department, identified cross-investment among companies, leverage embedded in exchange-traded products and derivatives, and uncertainty over long-term revenue growth as structural risks surrounding the AI buildout.
Equity and credit markets show uneven adjustment
David Snider, head of quantitative equity research at Bank of America, said equity valuations have already absorbed part of the yield shock. He cited a decline in the S&P 500 price-to-earnings ratio from 23 to 19 during the year, alongside earnings growth above 30% over the previous 12 months.
Snider also pointed to an equity-bond valuation gap of around 230 basis points, measured by the S&P 500 earnings yield minus the 10-year real Treasury yield. That measure has remained relatively stable for two years, suggesting stocks have not become universally expensive relative to inflation-adjusted bonds.
Yet the market’s internal signals are less comfortable. Small-cap shares, real estate companies and homebuilders have diverged from the largest technology names, while market breadth has fallen to its lowest level since the dot-com era, according to Snider. He also flagged a historical stress threshold: a rise of more than 50 basis points in the 10-year Treasury yield within a month, roughly a two-standard-deviation move.
Mohamed El-Erian, president of Queens’ College, Cambridge, has often described the bond market as the place where fiscal and inflation concerns eventually become unavoidable. The current rise in global yields appears consistent with that dynamic. Vince Marshall’s market assessment found that yields have climbed across major economies and across both short- and long-dated maturities, driven by growth expectations, inflation risk, central-bank shifts, investment demand and fiscal concerns. Term premia—the extra yield traders demand for holding longer-dated bonds—have reached their highest level in more than a decade.
For crypto markets, the practical implication is less about a predetermined price target for bitcoin than about financing conditions. Bitcoin was cited near $81,050 in the supplied material, but its ability to hold or extend gains would depend on liquidity, risk appetite and leverage across the wider market. Treasury yields above 5% give portfolio managers a stronger incentive to demand compensation for holding volatile assets, especially those dependent on borrowed capital or perpetual-futures leverage.
Higher yields do not guarantee a crypto selloff. They do make liquidity, leverage and funding costs more consequential, leaving highly leveraged positions more exposed if bond-market volatility accelerates.
Worried how rate shocks hit Bitcoin and altcoins? Explore Bitcoin–interest rate dynamics to align your macro and crypto strategy.
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