5% Is the Threshold: Further Rise in U.S. 10-Year Treasury Yield Could Even Derail the AI Boom

Equities Rattled by Soaring Global Bond Yields
Surging Bond Yields Have Preceded Market Bubbles Bursting and Financial Crises

Due to a sharp surge in international oil prices and concerns over interest rate hikes, major government bond yields in countries such as the United States and Japan have experienced a tantrum, taking a heavy toll on the Korean stock market as well. Experts have even raised the possibility that if the U.S. 10-year Treasury yield breaks above 5% on a prolonged basis, it could dampen the artificial intelligence (AI) frenzy, which has been a driving force for the stock market rally.

The Stock Market Hit Hard by the Surge in Major Government Bond Yields

As of 10:01 a.m. on September 3, the KOSPI was up 1.19% from the previous session, trading at 6,640.74. At the same time, the KOSDAQ recorded a drop of 0.28%, standing at 801.75.

Samsung Electronics was trading at 252,500 won, up 0.80% from the previous session, while SK hynix was up 0.68% at 1,624,000 won. Other strong performers included SK Square (0.81%), LG Energy Solution (5.04%), Hyundai Motor (1.32%), and Samsung C&T (2.28%). Bank stocks also showed strength on expectations of higher interest rates, with KB Financial Group (5.32%), Shinhan Financial Group (3.89%), and Hana Financial Group (3.71%) displaying notable gains.

The previous day, the KOSPI had plunged 3.99% as yields on long-term government bonds in major economies spiked, but today, bargain hunting helped the market rebound. The U.S. 10-year Treasury yield, which triggered the sharp decline, climbed as high as 4.82% overnight, hitting its highest point since November 2023. However, it later edged down slightly and is currently around 4.78%. As government bond yields moderated, the Dow Jones Industrial Average (up 0.56%), the S&P 500 Index (up 0.46%), and the Nasdaq Composite Index (up 0.45%) all rose in the U.S. markets overnight.

Market analysts expect that the higher U.S. Treasury yields rise, the more weight it will put on the stock market. As yields rise, investors can earn significant returns from interest income alone, reducing their incentive to take on risk by allocating funds to equities.

The KOSPI started higher, recovering to the 6,600 level in early trading on the 3rd. The real-time KOSPI and KOSDAQ indices are displayed on the electronic board in the dealing room at the Hana Bank headquarters in Jung-gu, Seoul. Photo by Yonhap News Agency

If the U.S. 10-Year Treasury Yield Breaks Above 5%, It Will Be a Significant Burden on the Stock Market

Some experts see a 5% yield on the U.S. 10-year Treasury as a signal of crisis. This is because there have been many cases in the past—such as the IT bubble burst in 2000 and the global financial crisis in 2007—where a sharp climb in U.S. Treasury yields preceded a steep downturn in the stock market. Lee Euntaek, Managing Director at KB Securities, warned, "The common denominator observed in all past stock market bubbles bursting was a structural and sustained rise in interest rates," and added, "If the U.S. 10-year Treasury yield surpasses 5% in a sustained trend, it is dangerous."

He also raised concerns that if the yield crosses 5%, investments in AI may decrease, erasing the main momentum for the stock market rally. Lee further pointed out, "Historically, it was never declining corporate investment or earnings that ended bubbles—it was the rise in Treasury yields," and added, "When rates rise, big tech companies may not be able to stop investing in AI, but providers of capital certainly can."

Lee Jaeman, Head of Global Investment Analysis at Hana Securities, also noted, "As the U.S. 10-year Treasury approaches 5%, the pressure from rising costs rather than growth becomes more pronounced, which inevitably weighs on the indices." He explained, "In October 2023, when the U.S. 10-year Treasury yield surged to 5%, the KOSPI dropped by more than 10%."

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