How Demographics Will Break the Bond Market | Manoj Pradhan

Aging populations and shrinking workforces are driving a structural shift toward higher real interest rates and persistent inflation, challenging the long-standing "lower-for-longer" economic consensus. Public debt issuance to cover unfunded liabilities, particularly in healthcare, competes with private investment for a limited pool of savings, creating a fiscal squeeze. Baumol’s Cost Disease further exacerbates this, as healthcare costs rise independently of productivity gains. Meanwhile, the disinflationary tailwinds previously provided by China’s integration into the global economy are fading, shifting the burden to domestically generated services inflation. Central banks, constrained by record-high debt-to-GDP ratios, face a precarious trade-off between monetary stability and economic growth. This environment risks a transition to fiscal dominance, where governments pressure central banks to suppress bond yields, ultimately undermining the independence of monetary policy and forcing a fundamental repricing across equity and credit markets.