---
title: "From the global stock rally and resilient gold to emerging market arbitrage: Is 'falling real rates' the correct foundational assumption for this year's cross-asset trends?"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/296303928.md"
description: "Goldman Sachs analysis points out that the current cross-asset boom in equities, gold, emerging market arbitrage, and narrowing credit spreads essentially shares a single logic: real interest rates are poised to decline. However, the US 10-year real yield remains at a high of approximately 2.50%, meaning the key premise has yet to materialize. Goldman Sachs suggests not betting against the arbitrage narrative for now, but advises controlling position sizes and using the trajectory of real interest rates as the ultimate basis for judgment"
datetime: "2026-08-19T05:04:18.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/296303928.md)
  - [en](https://longbridge.com/en/news/296303928.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/296303928.md)
---

# From the global stock rally and resilient gold to emerging market arbitrage: Is 'falling real rates' the correct foundational assumption for this year's cross-asset trends?

Overnight, US stocks declined significantly, while long-end US Treasury yields continued to rise. This trend is not limited to the US; bond yields in major economies such as Germany, Japan, and the UK have also been on an upward trajectory recently. Global capital is repricing for "higher rates and higher cost of capital."

The issue is that this contradicts the main theme traded by the market over the past few months. The current market consensus has been: **economic slowdown, falling inflation, and eventual Fed rate cuts, implying that real interest rates should gradually decline, allowing risk assets to continue enjoying carry trades.**

However, reality shows that **the bond market does not believe in this logic.** According to Zhuifeng Trading Desk, a report by Goldman Sachs' Vitali Meschoulam team on August 18 argued that what truly determines market direction is **real yields (Real Yield)**.

Risk assets have effectively priced in future easing in advance: equities, credit bonds, EM carry, and gold are all pricing in an eventual decline in real rates; yet the bond market continues to keep the 10-year US real yield at a high level of around 2.5%, failing to confirm this expectation.

In other words, the biggest contradiction in the market right now is:

> **Equity markets believe rate cuts will materialize, while bond markets believe long-term capital costs remain elevated.**

If real rates do fall in the future, the logic behind the current rise in risk assets will be validated; but if real rates remain high, stocks, credit bonds, and the entire carry trade face the risk of repricing.

Goldman Sachs believes that ultimately one side must "admit defeat"—either bond yields come down, or risk assets come down.

****

## Cross-asset convergence driven by a single bet

On the surface, the strong performance of global assets this year stems from multiple mutually reinforcing logical chains:

> -   CPI data for June and July showed continued cooling in inflation, with marginal weakening in demand indicators such as US consumption, significantly reducing the likelihood of further rate hikes by major central banks.
> -   Meanwhile, volatility outside of interest rates has remained generally low, credit markets are stable, emerging market arbitrage trades continue to work, and stock markets are rising amidst fluctuations.

Goldman Sachs points out that these signals jointly support the market's "arbitrage narrative"—**holding risk assets is profitable in an environment of cooling inflation, slowing growth, and a central bank pivot toward easing.** Whether arbitrage strategies can continue to succeed in the future **depends entirely on the next move in real yields.**

Specifically, there are two paths:

> -   **Path 1 (Optimistic):** Cooling demand drives inflation further down, the Fed gains validation and begins cutting rates, real yields decline toward 2.00%, confirming the cross-asset bullish pattern, and the "bad news is good news" logic remains valid.
> -   **Path 2 (Risk):** Economic growth slows, but real rates do not decline significantly. Whether due to sticky inflation, rebuilding term premiums, fiscal pressure keeping long-end rates high, or the Fed's inability to deliver the magnitude of easing priced in by the market, any of these could lead to slower growth without a sufficient drop in real rates—this is the most uncomfortable quadrant for risk assets.
> 
> 
## Why are real rates slow to fall? Five structural factors exert pressure

Despite recent signs of cooling in consumption indicators, real rates remain high. Goldman Sachs analysis suggests this is due to the superposition of multiple factors:

**1\. Persistent fiscal pressure.** Large deficits, rising debt servicing costs, and substantial Treasury supply put pressure on the clearing prices of long-duration government bonds. Even if the economy slows, investors may demand higher duration compensation.

**2\. Doubts about policy credibility.** If the market begins to question whether fiscal or monetary policy can effectively anchor inflation and debt dynamics, weak economic growth will not automatically translate into lower long-end yields—a "credibility premium" may offset normal cyclical duration demand.

**3\. Term premium may be rebuilding.** After years of quantitative easing suppressing long-end rates, stable inflation expectations, and highly predictable policy functions, investors may now require higher compensation for inflation volatility, fiscal uncertainty, and supply risks. This means real yields could remain above levels suggested by historical experience since the 2008 financial crisis for an extended period.

**4\. Massive AI and data center capex changes the investment landscape.** Large-scale spending on data centers, power infrastructure, and AI computing power may continue to push up physical capital demand, thereby supporting a higher equilibrium real interest rate.

**5\. Oil prices returning above $90 complicate the inflation narrative.** Rising energy prices make assumptions of a smooth disinflation path and a linear rate-cut cycle harder to sustain.

The superposition of these factors points to an important conclusion: the current real yield of 2.50% may not just be a temporary cyclical overshoot, but partially reflects higher fiscal risk premiums, higher term premiums, more persistent inflation volatility, and stronger structural capital demand.

**If this judgment holds, the room for real rates to decline will be far more limited than the market expects.** It is also worth noting that inflation breakevens have not shown a significant upward trend.

**Historically, markets have been better able to digest environments of high real rates because they were accompanied by rising breakevens and stronger nominal growth to offset the impact, but this hedging mechanism is currently largely absent.**

## Do not bet against the arbitrage narrative for now, but prudently control position sizes

At the strategic level, Goldman Sachs' Vitali Meschoulam team explicitly stated that they do not recommend actively betting against the arbitrage narrative for now—**momentum remains strong, volatility is low, and the market continues to interpret weak data as signals of future easing.**

**However, the team emphasizes the need to control position sizes accordingly and view the trajectory of real interest rates as the ultimate "arbiter."**

**The key indicator to watch is:** whether the US 10-year real yield can move from its current level of around 2.50% toward the 2.00%–2.25% range. If this move materializes, it will provide a more solid fundamental support for equities, credit, emerging market arbitrage, and gold.

Conversely, if real yields remain persistently in the 2.40%–2.60% range, risk assets will become increasingly dependent on a rate-cut cycle that is "visible in expectations but not yet reflected in long-term discount rates."

The market views economic slowdown as a reason to hold risk assets, but ultimately, real interest rates are the final arbiter in this cross-asset game.

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