U.S. Treasury Yields Are Falling... Why Is the KOSPI Still Reeling?

U.S. Treasury Yields Plunge to the 4.9% Range After Hitting 5.3%
Concerns About an Economic Slowdown Grow Amid AI Profitability Debate, Persistently High Oil Prices, and France’s Fiscal Issues
Demand for Safe-Haven U.S. Treasuries Rises as Credit Ri

Despite U.S. Treasury yields, which surged sharply in the second half of this year and weighed on stock markets, recently turning lower, equities have struggled to rebound. Concerns about an economic slowdown have grown amid worries over high oil prices, debate over the profitability of artificial intelligence (AI) investments, and France's fiscal crisis. This has driven stocks lower while boosting demand for U.S. Treasuries, a safe-haven asset, analysts say. They warn that if high oil prices persist, the economy could slow faster than expected, potentially prolonging the stock market correction.

On the 26th, as the KOSPI opened lower after falling below the 5,500 mark, a display board in the dealing room at Hana Bank's headquarters in Jung-gu, Seoul, showed the KOSPI, KOSDAQ and USD/KRW exchange rate. The KOSPI opened at 5,499.05, down 51.25 points (0.92%) from the previous trading day, while the KOSDAQ opened at 742.17, down 9.52 points (1.27%). Both pared their losses and were trading slightly lower. 2026.10.26 Photo by Cho Yongjun

U.S. Treasury Yields Hit 5.3% Before Plunging to the 4.9% Range

According to the U.S. bond market on Oct. 28, the 10-year Treasury yield fluctuated in the 4.9% range on Oct. 27. The 10-year Treasury yield, which had been in the low 4% range at the start of the year, surged to the 5.3% range on Oct. 5, reaching its highest level since 2002. The main driver of the rise was the expectation that persistent high inflation could lead the U.S. Federal Reserve (Fed) to maintain its high interest rate policy for an extended period. Increased bond issuance by Big Tech companies, including hyperscalers, to fund AI investments also pushed Treasury yields higher.

However, after peaking on Oct. 5, the surging 10-year Treasury yield fell day after day and has now retreated to the 4% range. On Oct. 22 in particular, it plunged 19 basis points (bp; 1 bp = 0.01 percentage point) from the previous trading day, closing at 4.953% and falling below 5% for the first time in a month. The one-day drop was the largest in three years and seven months, since March 10, 2023.

Yields plunged because concerns about an economic slowdown grew amid the AI bubble debate and France's fiscal problems, while high oil prices and high inflation persisted due to the war in the Middle East. "Yields plunged as concerns over France's fiscal outlook intensified, while worries about an economic slowdown also emerged, with the Nasdaq falling amid concerns about an AI bubble," said Lim Jaegyun, a researcher at KB Securities. "The decline in confidence in the economy also contributed, easing concerns that the Fed would raise interest rates."

Stocks Fall Despite Lower Yields as Fears of an Economic Slowdown Grow

The problem is that the domestic stock market's decline has continued even as yields have fallen. Until recently, stocks fell as yields rose; now, they continue to fall despite yields moving lower.

"Until recently, a surge in long-term yields, driven by high oil prices, inflation pressures, and a rise in the term premium (the additional return investors demand for holding long-term bonds), pushed up discount rates and weighed on stocks," said Kang Jinhyeok, a researcher at Shinhan Securities. "But since October, yields have plunged as concerns have mounted over AI capital constraints and the credit risk of neocloud companies such as CoreWeave, and stocks have fallen alongside them."

Kang added, "It is not interest rates themselves that move the market; even the same change can carry different implications for the market depending on its cause and speed. A gradual decline in rates driven by easing inflation and a soft landing is positive, but a sharp drop reflecting slower growth and rising credit risk is not necessarily positive for risk assets."

Market concerns are focused on the possibility of stagflation, in which rising prices and an economic slowdown occur simultaneously. If the economy slows on its own, Fed rate cuts could support economic activity and stocks. But if international oil prices keep inflation elevated, the scope for a monetary policy response would be limited, and the economy could move beyond a slowdown into a recession. As a result, analysts say that falling Treasury yields alone are unlikely to improve investor sentiment toward stocks when slower growth and high inflation occur at the same time.

Analysts say that stabilizing international oil prices and easing concerns about the AI industry's outlook are necessary for stocks to stage a meaningful rebound. "For the market to establish a meaningful rebound, concerns about oil prices and the AI industry's outlook need to ease together. For short-term stability, at least one of the two concerns must begin to ease," said Byun Junho, a researcher at IBK Investment & Securities. He particularly noted, "Oil prices need to stabilize to sustain optimism about the global growth outlook for 2027. Lower oil prices could also lead to expectations of more stable, lower interest rates, easing concerns about AI investment and funding."

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