Japan's Government Bonds Break 3%, US 30-year Bonds Warn of 6%...Soaring Bond Yields, Will They Shake AI Investments?

▲ Japan, US, long-term bond yields, artificial intelligence (AI)/AI-generated image

An analysis suggests that while global long-term bond yields are soaring, whether AI investments and the stock market rally will falter depends on the speed of interest rate hikes.

Bloomberg TV reported on September 1 (local time) that Japan's long-term government bond yields reached 3% for the first time in decades, and Australia's yields also surged to their highest level since 2011. US 10-year Treasury yields also saw an increased rise overnight. Paul, who appeared on the broadcast, analyzed that concerns about rising inflation, increased bond supply, large-scale bond issuance by companies, and government fiscal spending are simultaneously pushing up interest rates.

He also pointed out that the market environment itself has changed. He explained that with relatively strong economic growth, the neutral interest rate has risen, and there is a growing recognition that central banks need higher policy rates than before to keep monetary policy sufficiently tight. This means that not only the Federal Reserve (Fed) but also the Bank of Japan is facing increased pressure to raise interest rates.

To calm the bond sell-off, central banks and governments must simultaneously restore confidence, he argued. Central banks need to raise interest rates to curb inflation, and governments must provide concrete plans for fiscal spending and debt management. He also mentioned the possibility that if US 30-year Treasury yields rise to 6%, investment demand aiming for high returns could flow back in.

He drew a line at the possibility that higher interest rates would collapse the stock market and AI investments. Although JP Morgan took a more negative view on the stock market due to the Fed's high interest rate outlook, he assessed that the current economy is being influenced by technological innovation and strong growth. However, he noted that rising borrowing costs could slow down the pace of growth and put a strain on funding for AI infrastructure investments.

The key is how quickly interest rates rise. He believed that if long-term interest rates rise moderately, the market would not experience a major shock. Conversely, if interest rates jump sharply in a short period, it could put significant pressure on the stock market and AI investments, he analyzed.

[Article Summary]

-Japan's long-term government bond yields reached 3% for the first time in decades, and Australia's yields also rose to their highest level since 2011.

-With high neutral interest rates and strong growth continuing, there is a growing recognition that central banks need to maintain higher policy rates than before.

-AI investments and the stock market can withstand a moderate rise in interest rates, but if long-term interest rates jump sharply, the market impact could be significant, according to analysis.

*Disclaimer: This article is for investment reference only, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*