Bond markets are entering a new era as geopolitics reshapes interest rates [Video]

For decades, investors largely viewed central banks as the primary force determining interest rates. According to Massif Capital founder and managing director Will Thomson, that era is beginning to end.

Joining Mike Maharrey on the Money Metals podcast, Thomson argued that investors are once again pricing bonds based on traditional fundamentals such as government debt, geopolitical conflict, political stability, inflation, and fiscal discipline. He believes these forces are fundamentally changing the global investment landscape, with important implications for bonds, stocks, gold, and portfolio construction.

From Afghanistan to global markets

Before discussing financial markets, Thomson shared his unique professional background. As founder and portfolio manager of Massif Capital, he oversees a global long-short equity strategy focused on energy, materials, industrials, and infrastructure rather than the technology-heavy portfolios common today.

Before launching Massif Capital, Thomson worked in investment banking, private equity, and political risk insurance at Lloyd's of London, and even served as a strategic advisor on economic issues in Afghanistan. His academic work also focused on integrating political risk into asset valuation, helping shape the framework he now applies to global financial markets.

Geography is once again pricing money

Thomson's central argument is that investors are entering a new financial regime.

Following the 2008 financial crisis, central banks largely dictated the price of money through monetary policy. Investors paid relatively little attention to government debt burdens, geopolitical conflict, or political stability because inflation remained subdued and globalization reduced many traditional risks.

Today, Thomson believes those assumptions no longer hold.

He argues that long-term interest rates are increasingly reflecting sovereign debt levels, fiscal quality, military conflicts, domestic politics, and inflationary pressures. Countries engaged in costly conflicts or carrying unsustainable debt loads are now seeing those risks reflected more directly in borrowing costs.

Rather than relying solely on central bank policy, investors are once again evaluating governments the same way they evaluate businesses—by assessing overall financial health and long-term stability.

Why the traditional 60/40 portfolio is changing

One of the biggest implications of this shift involves the classic investment portfolio consisting of 60 percent stocks and 40 percent bonds.

Historically, bonds often appreciated when stocks declined, helping smooth portfolio volatility. Thomson argues that the relationship has weakened considerably.

Instead of moving in opposite directions, bonds and equities have increasingly moved together as higher long-term interest rates simultaneously pressure both markets.

This creates a more challenging investment environment because bonds may no longer provide the diversification investors have relied upon for decades.

Rising rates pressure long-duration assets

Higher long-term interest rates also change how investors value companies.

Thomson explained that businesses whose expected profits lie far into the future—particularly many high-growth technology companies—become significantly more sensitive to rising discount rates.

As borrowing costs increase, those future earnings become less valuable in today's dollars, reducing overall valuations.

Meanwhile, companies generating cash flow from productive real-world assets today may prove more resilient in this environment.

Gold's role continues to grow

The conversation also explored why central banks continue accumulating gold despite higher interest rates.

Traditionally, rising rates have often pressured gold prices because investors can earn greater returns on interest-bearing assets. Thomson acknowledged that relationship but argued today's environment is far more complicated.

He noted that governments around the world increasingly recognize that U.S. Treasury securities carry geopolitical risks. The freezing of Russian assets demonstrated that sovereign reserves can become inaccessible during geopolitical disputes.

Gold, by contrast, carries no counterparty risk.

As Thomson explained, gold remains attractive because it is "no one's liability." Unlike government debt, physical gold cannot default, be diluted through additional issuance, or depend upon another country's political decisions.

Can the Federal Reserve control long-term rates?

Mike Maharrey questioned whether the Federal Reserve still possesses meaningful control over long-term interest rates.

While acknowledging the Fed retains significant influence over short-term policy rates, Thomson questioned whether markets may increasingly determine longer-term borrowing costs independently.

Given the enormous size of global bond markets, he suggested that even aggressive Federal Reserve intervention could prove less effective than many investors assume.

As fiscal concerns grow, market participants—not policymakers—may increasingly determine where long-term yields settle.

America's growing debt burden

The discussion naturally turned toward the United States' mounting fiscal challenges.

Maharrey noted that federal debt has climbed to nearly $40 trillion, while rising interest rates steadily increase borrowing costs for Washington.

Thomson expressed skepticism that current political institutions possess the ability to implement meaningful long-term fiscal reforms. He pointed to recurring debt ceiling debates, continuing resolutions, and repeated budget standoffs as evidence that structural fiscal problems remain unresolved.

If borrowing costs continue climbing while debt levels expand, those pressures could increasingly influence both economic growth and financial markets.

Why quality matters more than ever

Rather than focusing solely on asset allocation, Thomson encouraged investors to think more broadly about investment quality.

That means evaluating management teams, balance sheets, political environments, regulatory stability, and operational execution—not simply buying assets because they fall within a particular sector.

Drawing from nearly two decades of analyzing mining companies, Thomson emphasized that outstanding management can often determine whether an otherwise ordinary asset becomes highly successful, while poor execution can undermine even attractive projects.

In his view, understanding leadership quality, geopolitical risk, and long-term fundamentals has become increasingly important as investors navigate a more complex global economy.

Looking ahead

Throughout the interview, Thomson argued that investors should prepare for a world where geopolitics, fiscal discipline, inflation, and sovereign debt once again drive financial markets.

Rather than assuming central banks alone determine the cost of money, he believes investors must evaluate governments, companies, and assets through a broader lens that incorporates political and economic realities.

As bond markets evolve, portfolio construction, gold ownership, and the definition of investment quality may all need to evolve alongside them.