Despite 5% U.S. Treasury Yield Shock, Korean Companies Push Ahead with Local Expansion

HD Hyundai Electric and Hyosung Heavy Industries Continue U.S. Plant Expansions
Limited Impact Seen; Investment Plans Remain
Battery Industry Maintains Operations by Improving Facility Utilization

As long-term U.S. Treasury yields surge, the cost burden for domestic companies raising funds for large-scale expansion projects in the United States is growing. While expansions with already-approved investments and ongoing execution are proceeding as scheduled, concerns are emerging that if high interest rates persist for an extended period, companies may need to reassess the business viability of additional expansions or new investments.

According to the financial sector on August 24, as of the 21st (local time), yields on 10-year and 30-year U.S. Treasury bonds closed at 4.73% and 5.28%, respectively, reaching the highest levels since 2007.

The rise in long-dated Treasury yields is attributed to increased supply pressure from the expansion of the U.S. fiscal deficit, higher capital demand driven by a surge in artificial intelligence (AI) investments, and concerns about oil prices and inflation caused by geopolitical instability.

When long-term Treasury yields rise, the cost of raising funds for the private sector, including corporate loans, also increases. For domestic companies building or expanding large-scale production facilities in the U.S., these elevated financing costs can undermine investment returns.

An industry source remarked, "It is not yet at the point where domestic companies need to change their U.S. investment strategies immediately," but added, "If Treasury yield increases remain prolonged, they will have to carefully weigh the costs of raising capital and expected profitability for future expansion or new investment."

Major players in the power equipment sector, such as HD Hyundai Electric and Hyosung Heavy Industries, currently see little likelihood of delaying their ongoing U.S. expansions. They believe that because most investment decisions and funding have already been made and executed, the immediate impact is limited.

A source from the power equipment industry explained, "A significant portion of investments related to current expansion projects have already been executed. The costs were determined at the point of investment or contract award, so the ongoing work is only minimally affected by the increase in U.S. Treasury yields."

Solid demand for North American power grid upgrades and AI data center infrastructure is another reason existing investment plans are being maintained. However, there remains the possibility that, if high interest rates persist for a long period, the cost burden of raising funds could become a factor when considering further capacity increases in the future.

Another industry source said, "With a bright demand outlook in the North American market, there is no reason to change plans solely due to rising Treasury yields. There is no impact on current operations, and we plan to monitor the situation closely going forward."

Hyosung Heavy Industries and HD Hyundai Electric are participating in North American power infrastructure projects, focusing on ultra-high voltage transformers. LS Electric is also targeting the data center market with products such as switchboards and circuit breakers.

The battery sector also sees increased financing costs as a burden when considering new investments. However, while maintaining current projects that have already been approved, these companies plan to boost the utilization of existing production bases—such as converting facilities for electric vehicle batteries to energy storage system (ESS) use—in response to the slowdown in demand for electric vehicles.

This content was produced with the assistance of AI translation services.