US Long-Term Treasury Yields Hit 19-Year Highs, Threatening AI Rally

Despite stable inflation data suggesting the U.S. Federal Reserve might hold interest rates steady, long-term U.S. Treasury yields have climbed to their highest levels in 19 years, fueling market anxiety. The surge, particularly in 30-year Treasury yields which closed at 5.310% and briefly touched 5.325%, is the highest since June 2007. The benchmark 10-year Treasury yield also rose, reaching 4.746%.

“

Funding for hyperscalers' data center construction is occurring in the ultra-long-term segment, competing with Treasury demand.

Typically, falling inflation expectations lead to lower Treasury yields as markets anticipate central bank rate cuts. While U.S. inflation figures for July have met expectations, easing some market concerns and reinforcing the view of a Fed rate freeze, long-term yields continue to climb. This trend suggests market participants are seriously considering the risks of persistent inflation and substantial national debt.

The U.S. Treasury's recent auction of $25 billion in 30-year bonds saw a high yield of 5.216%, the highest since 2001, as investors grew wary of inflation amid large-scale Treasury issuance to manage the deficit. Additionally, increased long-term corporate bond issuance by tech companies investing heavily in AI infrastructure is diverting demand from Treasuries. "Funding for hyperscalers' data center construction is occurring in the ultra-long-term segment, competing with Treasury demand," noted Kim Yun-kyung, head of bond analysis at the Korea Center for International Finance.

“

For the bond market to turn bullish (yields to fall), AI investment would need to drastically shrink, or AI would need to prevent a significant increase in overall bond supply, neither of which seems likely.

Some speculate that recent joint intervention by the U.S. and Japan to defend the yen might have inadvertently highlighted U.S. Treasury market instability. Concerns that Japan might sell large amounts of U.S. Treasuries to support the yen could have prompted U.S. intervention. Wall Street is now focusing on the trajectory of long-term yields (10- and 30-year) as a critical variable that could disrupt the "AI rally." Sustained high rates would increase tech companies' capital costs, forcing a reassessment of AI infrastructure investment.

“

Rising long-term yields could dampen the momentum of a stock market recovery.

"For the bond market to turn bullish (yields to fall), AI investment would need to drastically shrink, or AI would need to prevent a significant increase in overall bond supply, neither of which seems likely," said Kim Sung-soo, a researcher at Hanwha Investment & Securities. He added that rising long-term yields could dampen the momentum of a stock market recovery. The KOSPI fell 1.55% on the day, influenced by the rising U.S. Treasury yields. "With several factors impacting U.S. Treasury yields this week, including the release of the FOMC minutes, we need to monitor the trend more closely," advised Seo Sang-young, a researcher at Mirae Asset Securities.

“

With several factors impacting U.S. Treasury yields this week, including the release of the FOMC minutes, we need to monitor the trend more closely.