The Unanchoring Thesis: De-Globalisation, Ageing, and the Case for Structurally Higher Rates
Evaluating Pradhan and Goodhart's demographic-fiscal thesis against current US and Eurozone rate markets
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Manoj Pradhan and Charles Goodhart argue, in The Unanchored Central Banker (2026) and its predecessor The Great Demographic Reversal (2020), that de-globalisation and population ageing will structurally raise real interest rates and fiscal pressure, eroding central banks' ability to anchor inflation expectations. This paper evaluates that thesis against current market pricing and derives a 10-15 year path for US and Eurozone policy rates and 10-year sovereign yields. Current pricing already shows repricing under way: the US 10-year Treasury trades near 4.7% (highest since January 2025) against a Fed funds range of 3.50-3.75%; the German 10-year Bund trades above 3.2% (highest in over fifteen years) against an ECB deposit rate of 2.25%. Our central scenario is a US 10-year peak of 5.5-6.0% and a German 10-year peak of 4.0-4.5% within 10-15 years, with the key uncertainty being whether sovereign debt-sustainability constraints cap the rise before it reaches this range, forcing central banks toward financial repression instead - the 'unanchoring' mechanism the authors themselves describe.
Key Takeaways
US and Eurozone yields are already repricing higher, consistent with the early-to-middle stage of the Pradhan-Goodhart demographic/fiscal thesis, not its confirmation or refutation
Central case: US 10-year yields peak 5.5-6.0%, German 10-year yields peak 4.0-4.5%, over a 10-15 year horizon, as a gradual multi-year drift rather than a single repricing event
The critical open question is not direction but ceiling: debt-sustainability constraints may force fiscal dominance and financial repression before yields reach these levels, capping nominal yields while inflation runs persistently above target
AI-driven productivity growth is the main upside scenario that could moderate this path; watch term premium and fiscal deficit-to-growth trajectories in the US, Germany and France as the key real-time signals
1. Evidence
1.1 The thesis as stated by the authors
Pradhan and Goodhart's argument rests on three linked claims, set out across their two books:
Demographic ageing across advanced economies and China will generate fiscal deterioration larger than mainstream forecasts currently assume, as dependency ratios rise and government dissaving outweighs any offsetting increase in household saving among the elderly.
China's disinflationary contribution to the global economy, built on the largest labour-supply expansion in modern history, is fading as its own working-age population shrinks, removing a structural anchor on goods-price inflation.
The combined effect is that central banks will face a genuine trade-off between fighting inflation and preserving government debt sustainability, since raising rates enough to control inflation risks destabilising sovereign finances in highly indebted economies - the mechanism by which inflation expectations become "unanchored."
The authors are explicit that this is a structural, multi-year thesis rather than a dated forecast; their first book (2020) argued the reversal was already underway, and the sequel (2026) extends the argument to the current fiscal-dominance environment without specifying a peak level or date for rates.
1.2 Current market pricing (as of 24-25 July 2026)
US 10-year Treasury yield: approximately 4.67-4.70%, the highest since January 2025, following a multi-session rally.
Federal funds target range: 3.50-3.75%; the Fed is widely expected to hold at its upcoming meeting, with roughly an 80% probability assigned to a September move by futures markets at the time of writing.
German 10-year Bund yield: above 3.2%, the highest level since May 2011, following an ECB signal that it remains alert to inflation risk from an energy-price shock.
ECB deposit rate: 2.25% as of the July 2026 meeting, following the ECB's first hike in nearly three years; Eurozone headline inflation was 2.8% in June, down from 3.2% in May, with President Lagarde indicating a return to the 2% target only by late 2027.
Money markets are pricing further ECB tightening this year, a reversal from the easing bias priced as recently as earlier in 2026.
1.3 Historical reference points
The pre-2008 "normal" for US 10-year yields was broadly in the 4-6% range through the 1990s and early 2000s, with real short rates averaging materially above zero. The 2009-2021 period was a historical anomaly by this standard, driven by post-crisis balance-sheet repair, unconventional monetary policy, and the demographic/globalisation tailwinds Pradhan and Goodhart identify as now reversing. Current yield levels in both the US and Eurozone are re-approaching, but have not yet exceeded, pre-2008 norms.
2. Interpretation
The evidence is consistent with the early-to-middle stage of the regime shift the authors describe, rather than either its confirmation or refutation. Three observations follow directly from the data above, distinct from forecast or opinion:
The Eurozone move is currently the more dramatic of the two in relative terms: the Bund yield's fifteen-year high represents a larger break from its own post-2009 range than the US move does, consistent with Europe's more advanced ageing profile and weaker underlying growth trend making any fiscal or inflation shock harder to absorb without a larger yield reaction.
The proximate trigger for the current leg higher in both markets is an energy-price/geopolitical shock, not a demographic or fiscal event per se. This does not contradict the Pradhan-Goodhart thesis - their argument is precisely that ageing and de-globalisation remove the shock absorbers (spare labour supply, disinflationary imports, fiscal headroom) that would previously have let central banks look through such a shock.
The gap between current yields and the authors' "higher for longer" framing is one of magnitude and durability, not direction. Both markets are already validating the direction of the thesis; the open question is how much further, and how permanently, yields settle above the post-2009 range.
3. Scenario Analysis
We present three scenarios for the 10-15 year horizon (approximately 2036-2041), distinguished by how the debt-sustainability constraint identified by the authors resolves.
Scenario A - Structural repricing, orderly (central case)
Real neutral rates in advanced economies settle around 1.5-2.5%, versus approximately zero through the 2010s. US 10-year yields peak in a 5.5-6.0% range, Fed funds terminal rate around 4.5-5.5%. Eurozone (German) 10-year yields peak in a 4.0-4.5% range, ECB terminal rate around 3-4%; periphery spreads (France, Italy) add an estimated 100-250bp depending on fiscal trajectories. The adjustment is gradual, occurring over roughly a decade, with ordinary cyclical rate cuts along the way that do not reverse the underlying upward trend in the terminal level.
Scenario B - AI-productivity offset
Faster-than-expected productivity growth from AI adoption offsets a meaningful share of the labour-supply contraction, moderating both the growth drag and the fiscal deterioration the authors project. Peaks are lower than Scenario A: US 10-year yields plateau closer to 4.5-5.0%, German Bund yields closer to 3.0-3.5%. This is explicitly the scenario the authors treat with most caution, noting that AI-driven technological change historically has led to net employment gains rather than net destruction, but that the transition dynamics and timing remain genuinely uncertain.
Scenario C - Fiscal dominance / financial repression
Debt-sustainability constraints bind before real yields reach Scenario A levels. Central banks, under fiscal pressure, tolerate higher inflation and use balance-sheet tools or yield-curve-management techniques to cap nominal yields below what unconstrained market pricing would otherwise produce. In this world, nominal 10-year yields may undershoot the Scenario A range even as realised inflation runs persistently above target - the literal "unanchoring" outcome the authors' title describes. This is the scenario in which the thesis is validated most fully in substance, even though the specific yield numbers are lower than a naive extrapolation of current trends would suggest.
We regard Scenario A as the base case, with meaningful probability mass on both alternatives; the balance between B and C is, in our judgement, the single most important open question for long-duration institutional portfolios over this horizon.
4. Investment Implications
Duration positioning: the base case implies a structurally higher cost of long duration than the 2009-2021 period, arguing for a lower strategic allocation to long-dated nominal government bonds than pre-2022 benchmarks would suggest, independent of near-term cyclical calls.
Inflation-linked exposure: Scenario C (fiscal dominance) is the scenario in which inflation-linked bonds and real assets outperform nominal duration most decisively; maintaining a meaningful real-asset and inflation-linked allocation functions as a hedge against the scenario in which central banks are constrained rather than merely slow.
Sovereign spread differentiation within the Eurozone: the range presented for Germany should be treated as a floor for the currency bloc; France and Italy warrant separate, spread-adjusted analysis given materially different fiscal trajectories.
ALM and balance-sheet management: for bank treasury and ALM functions, duration and repricing-gap assumptions calibrated to the low-rate decade should be revisited; a higher and more volatile terminal rate regime changes the calculus for both asset duration and the value of embedded optionality (deposit betas, prepayment behaviour) built during the low-rate period.
Monitoring priorities: the clearest observable signal to distinguish between scenarios in real time will be the term premium component of long yields (rising term premium favours Scenario A or C; falling term premium despite rising short rates would favour B) and the trajectory of fiscal deficits relative to nominal GDP growth in the US, Germany, and France specifically.
This paper synthesises evidence from Pradhan and Goodhart's published work, current market data as of 24-25 July 2026, and platform-tracked yield and policy-rate series. Forward-looking figures are scenario estimates, not point forecasts, and should be treated with the uncertainty inherent to a 10-15 year macroeconomic horizon.