AI growth and inflation reshape fixed-income outlook

Goldman Sachs Asset Management says the recent rise in bond yields has improved the appeal of fixed income, while warning that a broad and lasting rally may depend on weaker energy prices or a loss of momentum in economic growth.

The firm’s fourth-quarter 2026 outlook, reported by am.gs.com, links the move in yields to three forces: stronger expectations for growth driven by artificial intelligence, renewed inflation pressure and a more hawkish Federal Reserve. Yields are now considered attractive, but the investment case is not uniform across markets. Differences between regions could create opportunities where local concerns have pushed prices too far in one direction.

The assessment is based on market information available on September 23, 2026, and on September 2026 data cited from Bloomberg, Goldman Sachs Asset Management and Barclays.

Rates and currencies

The Federal Reserve’s shift towards higher interest rates is central to the firm’s view. Goldman Sachs Asset Management expects the US dollar to receive support from that policy direction, particularly if energy prices rise substantially around the world. Higher energy costs could reinforce the contrast between US interest-rate expectations and those elsewhere.

A fall in energy prices, however, may not translate into a sharp decline in the dollar. The firm argues that interest-rate expectations outside the United States could decrease more significantly than American expectations in that scenario, limiting the currency’s downside.

The regional nature of the rates market is important to the outlook. Rather than treating global bonds as a single trade, investors may be able to identify differences between countries and markets. Such opportunities depend on local fears becoming excessive, and they also require investors to judge whether those concerns are justified by economic and policy conditions.

Goldman Sachs Asset Management says government bonds and high-quality credit can provide diversification if strong nominal growth begins to slow. That role is more significant while valuations for riskier assets remain elevated and uncertainty is high. The firm also sees higher real yields as supporting an attractive income environment, with opportunities spread across fixed income and particularly in emerging markets.

AI creates opportunity and credit risk

The expansion of artificial intelligence is influencing not only technology companies but also the way the buildout is financed. Chip-backed lending is the latest example of new funding structures being used to support the industry’s rapid development.

The firm continues to view AI as a long-term growth theme, with substantial room for further infrastructure investment and for companies to demonstrate their ability to generate returns. At the same time, it says the speed and novelty of the buildout require close attention to emerging credit risks. New financing arrangements may create exposures that are not yet fully tested across a range of economic conditions.

This makes security selection especially important. Goldman Sachs Asset Management says it is concentrating on areas of securitized and investment-grade credit where the expected return is sufficient for the risks being taken. AI adoption may create opportunities in several parts of the fixed-income market, but the firm does not regard exposure to the theme as automatically attractive.

The wider credit backdrop also calls for restraint. Spreads—the additional yield investors receive for holding corporate or other non-government debt—are described as extremely tight. Combined with higher interest rates and energy prices, that leaves less room for disappointment. The firm says investors could consider moving towards stronger borrowers and avoiding issuers that might struggle if rates remain high for an extended period.

At the same time, continued resilience in global growth could make a significant market pullback an opportunity to buy. That view creates a balance between caution over current valuations and a willingness to add exposure if prices become more compelling.

Risks across the bond market

The outlook does not remove the basic risks of fixed-income investing. Bond prices generally move in the opposite direction to interest rates, so further rate increases can reduce the market value of existing holdings. Issuers may also fail to pay interest or repay principal, with that credit risk generally greater in high-yield bonds.

Securities with floating or variable rates are usually less sensitive to rate movements than fixed-rate bonds, but they can lose value when rates do not behave as expected. Investors also face prepayment risk, when debt is repaid earlier than anticipated, and extension risk, when repayment takes longer.

Emerging-market and international investments may be less liquid and more volatile than developed-market assets. They can be affected by exchange-rate movements, regulation, economic conditions, politics, social developments, military events, environmental problems and natural disasters. Mortgage-related and other asset-backed securities carry additional risks tied to defaults, interest rates, prepayments and extensions. Municipal bonds can also be exposed to credit and interest-rate risks, especially when portfolios are concentrated in particular issuers or projects.

Goldman Sachs Asset Management says the material is educational and informational rather than personal investment advice or an offer to buy or sell securities. Its views may change, and investment strategies depend on an investor’s objectives and circumstances. The firm also cautions that benchmark performance does not guarantee portfolio results, because a portfolio’s holdings and construction may differ from those of an index.