Structural debt factors keep rates higher for longer, expert argues

Gerd Kommer asserts that structural factors, primarily high sovereign and private sector debt relative to GDP and demographic aging, will keep interest rates higher for longer. He cites research by British economist Charles Goodhart suggesting that aging populations have a structurally rate-increasing effect due to labor shortages. Kommer notes that US 10-year Treasury yields have broken through the 5% psychological barrier, reaching 5.3%, and warns that central bank attempts to suppress rates via quantitative easing will likely increase inflation. He identifies three paths for debt resolution: austerity, inflation-driven debt erosion, or a hard default, predicting a painful transition toward austerity. This view contrasts with Thorsten Slöck of Apollo Global Management, who argues that AI-driven productivity gains will cause deflation and lower rates within six months. Kommer remains skeptical of the AI deflation thesis, noting that while AI has supported markets since late 2022, the long-term economic benefits remain uncertain. He advises investors to avoid long-duration bonds, which have seen 30-40% losses in aggregate ETFs since 2022, and instead favor short-duration corporate bonds yielding 3.5-3.7% or hard-currency emerging market bonds for diversification. Kommer stated, "Der Bondmarkt ist die mächtigste Institution auf diesem Planeten."