Behind the seemingly calm surface of the global financial markets, debt sustainability is becoming a more significant structural risk.
According to the latest insights from Goldman Sachs hedge fund manager Tony Pasquariello, despite the S&amp;P 500 index being only 3% away from its February peak and the stock market performing strongly alongside high-yield bonds, debt risk could become the next unexploded bomb.
Tony Pasquariello stated that the selling pressure in the global bond market is intensifying, from Japan to the UK. The Japanese bond market, as a global duration anchor, has faced massive sell-offs in recent years, and the steep distortion of the U.S. interest rate curve has made every Treasury auction feel like walking on thin ice.
Pasquariello bluntly pointed out that although geopolitical turmoil in the Middle East has temporarily increased safe-haven demand, the structural risk of debt sustainability is quietly amplifying. Gold was the first to break through, followed by Bitcoin, and even silver has joined the frenzy of the &#34;store of value&#34; theme.
<h2>The Myth of AI Productivity and Expectations for Trump 2.0 Stimulus</h2>
In the face of warning signals from the bond market, the stock market has behaved unusually calmly. Pasquariello believes that this contradiction may hide three underlying logics.
First is the expectation of an AI productivity revolution. The visibility of generative AI themes will continue to extend beyond 2026, with the CEOs of Broadcom and Oracle expressing firm and optimistic views on demand visibility for next year. The Oracle CEO stated in the earnings call that &#34;demand is astronomical&#34; and raised the capital expenditure for fiscal year 2026 to over $25 billion.
Second is the expectation of Trump 2.0 policies. The market may be digesting a future scenario where the new government aims to push nominal GDP as high as possible through deregulation and stimulus measures.
The third explanation is the most straightforward. Perhaps the market is simply happy to accept ongoing fiscal generosity—huge deficits provide ample liquidity for businesses, pushing up asset prices.
Regardless of which logic dominates, the current asset allocation trend in the market is clear: shorting long-dated bonds, shorting the dollar, going long on store of value assets, and going long on stocks.
In this regard, Pasquariello quoted a legendary saying in trading: &#34;Make Money First, Make Sense Later,&#34; reminding investors to maintain discipline in uncertainty and follow market trends.
<h2>The U.S. Economy Has Not Yet Stalled, Providing Some Support for the Stock Market</h2>
Pasquariello further analyzed the macro and technical aspects.
Currently, despite mixed macro data, the fundamentals of the U.S. economy still show resilience. Tony Pasquariello expects U.S. GDP growth to be around 1.25% in 2025 and rebound to 1.8% in 2026, both above previously worried levels.
Pasquariello pointed out that consumer performance did not collapse during the peak uncertainty of tariffs, and businesses continue to generate, return, and reinvest massive capital. GDP fell by 0.2% in the first quarter, but is expected to grow by 3.8% in the second quarter, showing severe but non-fatal economic fluctuations
This &#34;slowing down but not losing speed&#34; state provides subtle support for the stock market.
However, the capital flow and position data show inconsistencies. After three consecutive weeks of net selling by actual fund investors, this week saw a significant net buying; hedge funds also shifted from net buying for seven consecutive days to net selling. Corporate capital flows are similarly polarized, with stock buybacks coexisting with new stock issuances.
Pasquariello pointed out that the current market technicals have not significantly impacted the trend, but the long gamma positions of options market makers may provide some stability to the summer market, especially against the backdrop of reduced intraday volatility and a 10-day realized volatility dropping to single digits

In the face of risks in the bond market, risk assets have performed well. The head of hedge funds at Goldman Sachs believes that three factors may be driving this: first, the AI boom; second, expectations of regulatory easing under Trump; and third, the boost to corporate profits from the fiscal deficit. Regardless of which logic dominates, market asset allocation tends to: short the long-end bonds, short the dollar, go long on value-storing assets, and go long on stocks

- Global financial markets are facing increasing structural risks related to debt sustainability, despite a calm surface.  
- Tony Pasquariello from Goldman Sachs highlights that global bond market sell-off pressures are intensifying, particularly in Japan, while geopolitical tensions temporarily elevate safe-haven demand.  
- He notes that the U.S. economy remains resilient, with GDP growth expected to rebound, providing subtle support for the stock market amid mixed macro data and inconsistent capital flows.

Goldman Sachs hedge fund chief interprets "strong US stocks": make money first, then find reasons