Has the Asian stock market rebound peaked? U.S. Treasury yields surge, 17 out of 20 times in history Asia-Pacific stocks fell

Zhitong Finance APP reports that during the Asian trading session on August 18, a "gap up, then fall" market, triggered by a surge in long-term U.S. Treasury yields, served as a wake-up call for global AI investors. Overnight, the 30-year U.S. Treasury yield rose to 5.29%, reaching its highest level since June 2007 and approaching its peak at the onset of the global financial crisis. The 10-year yield also climbed above 4.7%, nearing last week's 19-month high of 4.75%. The ongoing upward shift of this "pricing anchor" is becoming one of the biggest risks to AI-driven equity rallies in Asia. Data shows that over the past five years, when the 10-year Treasury yield rose by 20 basis points or more in a single week, the MSCI Asia Pacific Index fell in 17 of 20 such weeks, with an average decline of 1.7%.

Historical Warning: 20 Times in 5 Years, 17 Declines

The negative correlation between U.S. Treasury yields and Asian equity markets is not a new discovery but a repeatedly validated pattern. Data shows that over the past five years, when the 10-year U.S. Treasury yield increased by 20 basis points or more in a week, the MSCI Asia Pacific Index fell in 17 of 20 such weeks, averaging a 1.7% drop. This statistical rule has been repeatedly confirmed in recent market movements—last week's market performance continued this trend.

Vantage Global Prime analyst Hebe Chen noted, "If there is disorderly volatility in the global bond market, it will immediately affect the Asian region, especially as the AI frenzy intensifies, markets like Taiwan and South Korea are increasingly tightly linked to the U.S. tech cycle and capital flows."

The core issue lies in the "structural fragility" of Asian AI stocks. Chen further analyzed: "The recent rally in Asian equities has been largely concentrated in technology and AI sectors, which are precisely the market segments most sensitive to changes in capital costs, rising discount rates, exchange rate fluctuations, and global economic fundamentals."

Transmission Mechanism: Three Paths Explain How U.S. Treasury Yields Impact Asian AI Stocks

Path 1: Valuation Reassessment—Higher Discount Rate, Lower Present Value. Long-end U.S. Treasury yields serve as the anchor for global risk asset pricing. When the 30-year Treasury yield jumps from below 5% to above 5.3%, all valuation models for growth assets reliant on future cash flows must be recalculated. AI companies—especially hardware and model developers who have yet to achieve stable profitability—are far more sensitive to changes in discount rates than traditional industries. The expanded declines in U.S. stock index futures during Asian hours (Nasdaq futures -0.4%, S&P -0.2%) are an immediate reflection of this pressure.

Path 2: Rising Financing Costs—Debt-Driven AI Expansion Model Under Pressure. Expansion of AI infrastructure is highly dependent on debt financing. Over the past week, the 30-year Treasury yield surged from below 5% to above 5.3%, meaning any AI infrastructure project relying on long-term debt will face higher interest expenses. KB Securities' Chief Strategist Lee Eun-taek pointed out that while large tech companies may continue to invest so as not to fall behind in the AI race, higher rates could prompt financial institutions to scale back funding.

Path 3: Reversal of Capital Flows—Funds Flow Back from Emerging Markets to U.S. Treasuries. When the risk-free rate rises above 5%, U.S. Treasuries themselves become a highly attractive asset class. The pressure for capital to flow back from emerging market equities to U.S. bonds increases. On August 18, South Korea's KOSPI saw institutional investors post a net sell-off of 785.4 billion won in a single day, while foreign investors and individuals net bought 86.5 billion won and 731 billion won respectively—this institutional exodus is a microcosm of the broader trend.

Furthermore, bond yields across U.S., Germany, France, and Japan are rising in tandem, with pricing benchmarks collectively loosening. The logic of the yen carry trade for global asset buying begins to reverse as Japanese bond yields approach 3%—Japan’s 5-year government bond yield hit a record 2.18%, and the 10-year rose to 2.945%, the highest since 1996.

Three Main Drivers Behind the Yield Surge

First, an AI bond issuance boom and a surge in U.S. Treasury supply. According to Citadel Securities, AI companies have issued around $1.5 trillion in bonds so far this year. Meanwhile, last week the U.S. Treasury was forced to issue $25 billion in 30-year new bonds at a yield of 5.216%, the highest winning yield for such deals since 2001.

Second, inflation expectations are ticking up again. Brent crude has risen to $91.24 per barrel. The temporary U.S.-Iran ceasefire agreement officially expired on August 17, while negotiations over the Strait of Hormuz remain deadlocked. The University of Michigan’s one-year inflation expectation has stayed above 4% for a fifth consecutive month.

Third, greater uncertainty over Federal Reserve policy. Citadel Securities warns that the Fed’s reluctance to tighten monetary policy further keeps long-term bond yields at multi-year highs. Despite CME data showing a 63% probability that rates remain unchanged in September, the chance of a rate hike is still 37%. Wells Fargo Investment Institute has recently revised its forecast to expect a 25 basis point rate hike from the Fed this year.

Key Threshold: The “Alert Zone” for 10-Year U.S. Treasuries at 5%-5.3%

In a press conference on August 18, KB Securities Chief Strategist Lee Eun-taek provided a clear risk framework: A sustained break above the 5.0%-5.3% range in the 10-year Treasury yield would serve as a key warning signal for the AI investment cycle.

Lee explained, once the 10-year Treasury yield breaks above 5%, it will hit its highest level since the 2007 financial crisis; a break above 5.3% would mark the highest level in 25 years. In such a rate environment, capital providers could shift from pursuing risk assets to seeking secure returns, potentially triggering a contraction of the funding chain for the AI investment boom.

As of August 18, the 10-year Treasury yield had already risen to about 4.74%, just 26 basis points away from the 5% warning threshold. The current global bond selloff continues, and concerns about U.S. fiscal conditions are mounting.

Viewed from a more macro perspective, this round of surging long-term yields reflects three structural pressures: investor concerns over the explosion in government spending, a sharp increase in long-term bond supply, and the reality that inflation has consistently exceeded the Fed’s target for the past five years. These are not short-term disturbances but structural forces likely to keep risk asset valuations under pressure.

Key Events: Global PMI Data and Jackson Hole as Variables

Despite Asian markets demonstrating some resilience for now—DBS Bank analysts note that strong corporate profits, sustained AI enthusiasm, and a more dovish Fed stance provide support—such cushioning may be limited. Saxo Bank Chief Investment Strategist Charu Chanana cautions, “Asia may be temporarily insulated for now, but not entirely immune. If U.S. Treasury yields continue to rise, this resilience will be tested.”

The global Purchasing Managers' Index (PMI) data to be released this Friday, as well as Federal Reserve Chair Walsh's first keynote speech at the Jackson Hole Global Central Banks Symposium at the end of August, will be key variables in determining whether U.S. Treasury yields continue to climb and whether Asian AI stocks can hold their ground.