Goldman Sachs bond due 2045: 6.35% yield with a catch

The Goldman Sachs bond promising 6.35% until 2045: almost all of it is rate risk, not credit risk

A retail investor spotted on their broker a Goldman Sachs bond maturing in May 2045, with a 5.15% coupon and a yield to maturity of 6.35% in dollars. The temptation was strong: parking liquidity for nearly 20 years while capturing that coupon. But a detailed breakdown shows that most of that return is not a premium for the risk of Goldman going bust, but for the risk of interest rates rising.

The 6.35% is explained by duration, not by the bank

The 2045 bond is anchored to the 20-year US Treasury, which at the time of the discussion was around 4.7%-5%. The spread Goldman adds for its corporate risk is just 1-1.5%. In other words, more than 75% of the return comes from exposure to long-term rates, not from the issuer's solvency. As a detailed analysis pointed out, buying this bond amounts to accepting payment for enduring 19 years of interest rate fluctuations. If rates rise, the price on the secondary market plummets, and anyone wanting out before 2045 suffers considerable capital losses.

The callable risk: an option that works against you

Another point that often goes unnoticed is the early redemption clause (callable). Many long-term bank bonds include it. If rates fall, Goldman can redeem the bond at par, leaving the investor without the high coupon precisely when it would be most valuable to keep holding it. If rates rise, the investor bears the price loss while Goldman keeps paying the coupon. It's an asymmetry that benefits the issuer.

Too long for an environment of uncertain rates

The conclusion of several participants in the debate is clear: the term is excessive for the current context of uncertain rates. A sustained rise in long-term rates can bleed the price. As one of them quipped, "if rates go up, you're screwed while still alive." The bond is no bargain: it is priced so that the buyer takes on the duration risk other investors don't want. The open question: is it worth being locked in for 19 years for such a modest spread over the Treasury?