Goldman's Sehgal Prefers AI Infrastructure Over High-Yield Bonds

Anshul Sehgal of Goldman Sachs believes bonds offering yields of 5% or more are not the ideal investment at this time. He continues to favor AI infrastructure, describing it as a significantly more asymmetric proposition compared to long-dated bonds.

Sehgal, who serves as global co-head of Fixed Income, Currencies and Commodities (FICC) at the bank, shared his assessment only days after the Federal Reserve raised its benchmark rate.

Why Goldman Sachs Is Passing on 5%+ Bonds

Speaking on Goldman’s The Markets, Sehgal pointed out that the 30-year Treasury, commonly referred to as the long bond, had traded near 5% for several weeks. He noted that clients wish to purchase it at 5% or above, yet he continues to see limited potential for gains.

Since the recording, the yield has continued to rise, reaching 5.56% on September 29, marking a fresh 52-week peak. Sehgal attributed the pressure at the long end to structural factors. Retiring baby boomers are purchasing fewer long-term bonds, and significant long-dated borrowing associated with AI is saturating the market.

These pressures explain why the selloff can continue even without a new inflation shock. A declining number of retirees buying long bonds and a constant flow of long-dated borrowing linked to AI both exert downward pressure on prices, and neither dynamic dissipates quickly.

Sehgal adds that concerns about US debt sustainability make investors less willing to hold the long end, a trend that becomes self-reinforcing.

The key point is that a rising yield does not necessarily invalidate his argument. Instead, it may illustrate why he sees limited reward in holding the bond, while the risk to his AI trade is that more expensive long-term borrowing puts pressure on the leveraged companies he prefers.

AI Compute Is the Asymmetric Trade

An asymmetric trade provides far greater potential gains than possible losses. Sehgal applies that classification to compute, data centers, and Neoclouds—cloud providers built specifically to lease that capacity.

“I think the asymmetric expression is being long compute.”

Anshul Sehgal, Goldman

The catch is leverage. Savers collecting higher interest have effectively funded the AI build-out, leaving equities more indebted than a year ago. Sehgal acknowledges these are leveraged bets. Still, he believes they can increase substantially in value, while the broader stock market appears more uncertain.

Tighter Policy Hits Spenders, Not Capital

Sehgal says the Fed characterizes its September 16 rate increase as a catch-up after five years above its inflation target. Schwab reports that 16 of 19 Fed officials expect another increase this year. Sehgal adds that Fed Chair Kevin Warsh emphasized three times that the Fed is scaling back some stimulus rather than adopting a restrictive stance.

He argues that government interest payments flow to capital rather than workers, so higher rates reduce household spending, a risk for the broader stock market.

He also dismisses the debt-sustainability fears weighing on long bonds.

“For me, that’s a red herring.”

Anshul Sehgal, Goldman

Meanwhile, BlackRock’s Rick Rieder is reducing equities in favor of bonds yielding 7% to 8%, though his high-grade bond call still advises against rushing into the 10-year Treasury.

Sehgal identifies the Middle East conflict as the primary driver of policy and markets in the coming weeks.