Global Strategy Views Competition for Capital

Portfolio Strategy Research 17 September 2026 | 5:05AM BST

1. There are two themes dominating our investor conversations: the impact of AI and Peter Oppenheimer | the rise in interest rates. The two issues are linked as demand for capital from both Goldman Sachs International the private and public sectors increase. In the private sector a surge in capex Sharon Bell spending to fund AI infrastructure has eaten into free cash flow and forced | companies to raise more in debt and equity markets. Meanwhile, government Goldman Sachs International borrowing needs have increased as priorities shift towards upgrading critical Guillaume Jaisson | infrastructure, energy security and defense at a time when cyclical inflationary Goldman Sachs International pressures driven by higher energy prices are also resulting in higher policy rates. The combination has pushed up the cost of capital. As recently as 2022, for example, Elena Porfidia | 30-year bond yields in Germany and Japan were close to zero (Exhibit 1). A rise in Goldman Sachs International yields, together with more uncertainty (over geopolitics and the future impact of AI) Jacinta Feng have, in combination, pushed up the cost of capital. | Goldman Sachs International Exhibit 1: Rising yields and uncertainty have increased the cost of capital 30-year government bond benchmark yields (%)

Source: Datastream, Goldman Sachs Global Investment Research

2. This rise in yields comes after a near-record period of equity outperformance relative to bonds over 10-year holding periods (Exhibit 2).

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Goldman Sachs Global Strategy Views

Exhibit 2: Equities have enjoyed a near record period of outperformance relative to bonds 10-year rolling annualised equity vs. bond performance (ex post equity risk premia) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% US World portfolio

Source: Robert Shiller, Datastream, Haver Analytics, Goldman Sachs Global Investment Research

As equities have continued to outperform bonds, equity risk premia have fallen back to levels last seen in the late 1990s, leaving equity markets more vulnerable to further increases in bond yields. That said, in the US and Japan, the ERP has bounced off recent lows (Exhibit 3).

Exhibit 3: Equities have re-rated versus bonds amid higher inflation Global market implied ERP (%)

12 Asia Pacific ex Japan Europe Japan US World*

4 3.6% 3.1% 2.8% 2.6% 2 * Implied ERPs are calculated by each regional strategy team. While specific assumptions differ between regions, all are calculated using similar frameworks .

Source: Goldman Sachs Global Investment Research

3. The impact of rising bond yields, however, depends not only on the level of yields, but also on the reasons as well as the speed of the adjustment (Exhibit 4). It is the speed issue that has caused the biggest impact in the recent past. As our US strategists note, stocks have usually generated positive returns alongside rising interest rates unless the pace of rising rates exceeded 2+ standard deviations and this is a pattern that is broadly