U.S. Treasury Yields Surge Amid Iran War Uncertainty... Warning Signs for AI Tech Stock Rally

Amid uncertainties surrounding the Iran war, U.S. Treasury yields surged. The lack of any concrete solution to the Iran war during the recently concluded U.S.-China summit on May 15 heightened market anxiety. Rising international oil prices and concerns about inflation intensified apprehension over tighter monetary policy. Foreign media outlets have analyzed that surging Treasury yields have emerged as a new risk factor for the rally in technology stocks such as artificial intelligence (AI).

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According to Bloomberg News on the 18th (local time), on May 16, the yield on the U.S. 10-year Treasury exceeded 4.5%, while the 30-year Treasury yield surpassed 5%. The yield on Japan’s 30-year government bond rose to 4% for the first time since its initial issuance in 1999, and the yield on the UK’s 30-year government bond reached a 28-year high, climbing to 5.8%. Yields also rose simultaneously in Germany, Spain, and Australia. International oil prices also increased. West Texas Intermediate (WTI) futures rose by 4% that day, exceeding $105 per barrel, and Brent crude futures climbed by more than 3%, surpassing $109 per barrel.

After the U.S.-China summit, U.S. President Donald Trump stated that Chinese President Xi Jinping indicated a willingness to help keep the Strait of Hormuz open. However, China did not present any practical measures. On May 17, President Trump also increased pressure by saying that Iran was out of time, but there has been no change in Iran’s hardline stance. Sam Stovall, Chief Investment Strategist at CFRA, explained, “If the blockade of the Strait of Hormuz continues like a domino effect, upward pressure on oil prices will persist, which will keep inflation indicators elevated and is highly likely to lead to higher bond yields. This could dampen consumer and investor confidence and trigger a correction in recent stock market gains.”

Expectations for U.S. interest rate cuts this year are gradually fading. Jeffrey Gundlach, CEO of DoubleLine Capital, said in an interview with Fox News, “People were expecting two rate cuts this year, but inflation has not cooperated at all. With the 2-year U.S. Treasury yield currently 50 basis points (1bp=0.01 percentage point) higher than the Federal funds rate, it is impossible to cut rates in this situation.”

The outlook for rate cuts has also shifted in South Korea. The market expects that at the Monetary Policy Board meeting of the Bank of Korea scheduled for the 28th of this month, signals may be sent toward switching to a rate hike cycle. The current base rate of 2.50% could potentially be raised once or twice this year, reaching the 2.75–3.00% range. Kang Seungwon, a researcher at NH Investment & Securities, predicted, “After a one-time ‘insurance’ rate hike in the third quarter, the effect of the hike will be monitored through the end of the year.” In the fourth quarter, as the seasonal momentum for inflation tends to weaken and expectations for base effects from this year’s soaring international oil prices grow, there is analysis that another rate hike is possible.

This is expected to weigh on the stock market. Generally, rising bond yields increase corporate funding costs and add pressure to risk assets such as stocks and real estate. In the case of technology stocks like AI, expectations for future growth are often heavily reflected in current share prices. In this environment, as bond yields rise, the present value of future profits decreases, and investors may increasingly prefer the stable returns of bonds over growth stocks that are considered overvalued.

Scott Ladner, Chief Investment Officer (CIO) at Horizon Investments, said, “Eventually, the Iran war will end and commodity prices will return to pre-war levels, but as the U.S. earnings season nears its end, investors’ attention is shifting back to the macroeconomic environment. High interest rates are always a burden on the stock market.” CEO Gundlach also expressed concern, saying, “The market is very expensive and speculative, but corporate earnings continue to exceed expectations by a wide margin, which is fueling speculative fervor.”

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