Macro In Motion (English Version)

Since late July, long-term yields have been rising across the major sovereign bond markets. Yet US equities remain close to their record highs, driven mainly by AI-related stocks.

To understand this move, we need to go back to a fundamental question: the balance between savings and investment.

1. The same equation behind rising yields. High public deficits, more resilient growth than expected, persistent inflation and massive investment in AI: these factors do not offset one another, they reinforce each other. Since the 2008 crisis, abundant savings and a shortage of investment projects had kept rates in check. Today, financing needs are rising and drawing more heavily on available savings.
2. Real rates are becoming a regulating mechanism. The rising cost of capital reflects this stronger competition to finance investment. Yet markets seem to be extrapolating durable, AI-driven growth, while its productivity gains remain hard to identify in the data. If these investments fail to deliver the expected returns, those expectations could be called into question.
3. The first signs of fragility are emerging. In France, the spread over Germany has returned to levels last seen during the 2011 sovereign debt crisis. In the US, mortgage rates are climbing and a large share of stocks are trading below their 200-day moving average, despite the resilience of the major indices. These signals call for close monitoring of how higher rates feed through to the real economy.

Rising rates do not automatically end a cycle. But they can reveal its weaknesses.

How far can the economy absorb a higher cost of capital before this regulating mechanism becomes a drag on growth?

Listen to Philippine Watteaux and Loïc Cadiou’s analysis in the latest episode of Macro In Motion.

Feel free to contact us to share your feedback and topics you would like us to explore further: [email protected]

Disclaimer:
This podcast is intended solely to inform listeners and to share a view on macroeconomic news and financial markets. The opinions, analyses and comments expressed in Macro In Motion reflect exclusively the personal views of Philippine Watteaux and Loïc Cadiou as of the date of recording, and in no way engage the liability of Gay-Lussac Gestion.
It constitutes neither investment advice, nor a personalised recommendation, nor an offer or solicitation to buy or sell financial instruments or to subscribe to a financial product.
The information provided is subject to change and may not be suited to the situation, investment objectives or risk profile of each listener. All investments involve risks, including the risk of capital loss.
This podcast is the exclusive property of Gay-Lussac Gestion. Any reproduction or distribution is strictly prohibited without the prior written consent of Gay-Lussac Gestion.
For further details, please visit our website: www.gaylussacgestion.com.
GAY-LUSSAC GESTION - S.A.S. with share capital of €391,200 - Registered with the Paris Trade and Companies Register (RCS Paris) under number 397 833 773 - AMF approval No. GP 95-001 - Registered office: 45 avenue George V - 75008 PARIS - France.