Global government debt yields have climbed to a 19-year high on average this week.

Strategists at Goldman Sachs, including Christian Mueller-Glissmann, noted in a report that while the past five years have ranked among the worst periods for bonds in a century, the sharp rise in yields is enhancing their appeal. Despite the bond selloff strengthening the case for holding bonds within multi-asset portfolios, the strategists advised investors to remain cautious. They wrote: "We see reasons to return to a more 'normal' strategic bond allocation, but the case for a tactical overweight in long-duration bonds is mixed."

Goldman Sachs said higher starting yields provide a buffer against further increases and should push optimal bond allocations toward historical norms over the longer term. However, the firm believes that energy shocks and interest rate prospects may remain key drivers for both equities and bonds in the near term, meaning a higher bond allocation could increase portfolio volatility rather than act as a defensive buffer. The bank maintains an overweight stance on equities, a neutral position on bonds, and an underweight on credit in its 12-month asset allocation.

Mueller-Glissmann and his colleagues stated: "We believe bonds are increasingly becoming income-generating tools with diminished risk-mitigation functions, similar to the 100 years prior to the late 1990s."

Notably, Goldman Sachs' cautious stance is not the market consensus. The selloff has begun attracting some large investors. Bob Michele, Chief Investment Officer at JPMorgan Asset Management, said Wednesday that his team has started buying long-dated government bonds in the U.S., Japan, and Australia, viewing current prices as "simply too cheap" and noting that the bond market has reached a "pain threshold" of extreme distress.

Michele pointed to multiple converging tailwinds: from last week's European Central Bank rate hike, through the Federal Reserve, to the Bank of Japan's policy actions on Friday, a series of central bank moves will form significant support for the bond market. Meanwhile, with U.S. midterm elections approaching and the situation in the Middle East showing signs of stabilization, geopolitical risks may gradually cool.

The U.S. Treasury's buyback program for long-term bonds, initiated by Treasury Secretary Scott Bessent last month, is viewed by Michele as a key stabilizing force. He noted that Bessent "still has ample ammunition to ramp up if he chooses." Michele believes the selloff at the long end of the yield curve has been severely overshot. He pointed out that the rapid surge in long-end yields "highlights market concerns about the Fed's perceived loss of control," and that this rate hike could help Fed policymakers "reassert their command over the situation." In his view, "the dominoes have begun to fall," with policy coordination from the ECB to the Fed to the BOJ forming a complete logical chain of support for the bond market.