Will KOSPI Remain in the Red Today? U.S. 10-Year Yield Surpasses 5%, Flashing a Warning for Global Markets

The Surge in Oil Prices Is the Direct Cause
Fiscal Deficit and Corporate Bonds for AI Investment Compound the Pressure
Stock Market Valuation Concerns Intensify
Yields Climb Despite Bessent's Long-Term Treasury Buybacks

The yield on the U.S. 10-year Treasury bond, which serves as the benchmark for global long-term interest rates, has finally surpassed 5%. The surge comes as fears of inflation intensify following a sharp rise in international oil prices due to the Iran war, coupled with the massive U.S. fiscal deficit and increased corporate demand for funds to invest in artificial intelligence (AI). As a result, Treasury bond sell-offs have intensified. The "5% era," which can shake up both equity and bond markets, has returned.

A trader on the trading floor of the New York Stock Exchange (NYSE) shows a surprised expression while looking at the ticker board. Photo by Yonhap News.

According to electronic trading platform Tradeweb on the 14th (local time), the yield on the U.S. 10-year Treasury bond in the New York bond market climbed intraday to 5.012%, about 4 basis points (1bp=0.01 percentage point) higher than the previous trading day. This marks the first time since October 2023 that the yield on the 10-year Treasury has surpassed 5%.

In October 2023, the 10-year yield exceeded 5% during trading hours. Afterward, as employment and inflation slowed and the Federal Reserve ended its monetary tightening, Treasury yields declined. However, this time there are concerns that the upward trend could persist, given that labor market conditions remain solid while inflation driven by oil prices has resurfaced.

The 10-year yield serves as a benchmark not only for sovereign and corporate bonds around the world but also for U.S. mortgage and corporate loan rates. When this rate rises, it increases interest burdens for households and businesses, potentially dampening consumption and investment. As investors can now expect a 5% annual return from U.S. Treasuries—a risk-free asset—the relative appeal of riskier assets such as equities declines.

Technology stocks, in particular, could be hit hard, as they are often highly valued based on expectations of strong future growth. On this day, the tech-focused Nasdaq index fell by more than 1% during trading. Scott Chronert, U.S. equity strategist at Citi, described the 5% yield on the 10-year note as the market’s "Maginot line," warning of the potential for short-term shocks to the stock market.

Sharp rise in international oil prices is the immediate cause...September rate hike prospects increase

The immediate trigger for this surge in yields is international oil prices. Concerns about global oil supply disruptions have intensified after Saudi Arabia halted operations on a key pipeline that bypasses the Strait of Hormuz. Brent crude—the international oil benchmark—jumped more than 4% on the day, surpassing $108 per barrel.

The yield on the 10-year Treasury has already risen more than 1 percentage point compared to before the Iran war began. With U.S. consumer and producer prices for the previous month coming in stronger than expected and oil prices also spiking, markets are increasingly anticipating that the Federal Reserve will raise rates at the Federal Open Market Committee (FOMC) meeting on the 15th or 16th.

There are also more structural factors at play behind the weakness in the bond market. The U.S. government is increasing Treasury bond issuance to cover its large fiscal deficit. The Treasury Department has projected net marketable borrowing from the private sector for the third quarter alone at $739 billion. The U.S. Treasury market, which was worth about $4.5 trillion in 2007, has now ballooned to around $32 trillion.

Large-scale corporate bond issuance by big tech adds pressure...Bessent faces a test

Scott Bessent, U.S. Secretary of the Treasury. 2026.05.13. Photo by Dongju Yoon

On top of this, big tech companies are ramping up their corporate bond issuance to fund investments in AI infrastructure, including data centers and semiconductors, putting them in competition with the government for limited investor funds. Investors are demanding higher yields as compensation for increased supply and the risks of holding such bonds over the long term.

Jack Griffiths, head of investment grade and macro strategy at CreditSights, noted that fundamental conditions are in place for continued Treasury selling, and suggested the 10-year yield could rise as high as 5.5%. If current trends persist, U.S. Treasuries are projected to post their first annual loss since 2022.

Scott Bessent, U.S. Secretary of the Treasury, who has moved to stabilize long-term rates, is also facing a major test. To inject liquidity into the long-term Treasury market, the Treasury Department raised the buyback limit for 10-to-30-year bonds last month from $2 billion per operation to at least double, and last week conducted a buyback of up to $6 billion in 10-to-20-year bonds.

However, the market judged that the scale of the buybacks was insufficient to offset the supply of Treasuries and inflationary pressures. The buyback program is aimed only at improving liquidity for existing, thinly traded Treasuries, rather than substantially reducing overall issuance. Moreover, the Treasury funds the buybacks through new bond issuance, meaning there is little change in the private sector’s burden of holding Treasuries.

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