Has the Asian stock market peaked? With U.S. Treasury yields surging, historically, in 17 out of 20 instances, the Asia-Pacific stock market has declined.

On August 18, during the Asian trading session, a "high open and low close" market triggered by the surge in long-term U.S. Treasury yields rang alarm bells for global AI investors. Overnight, the yield on the 30-year U.S. Treasury bond rose to 5.29%, reaching its highest level since June 2007 and approaching the peak seen at the onset of the global financial crisis. The yield on the 10-year Treasury bond also climbed above 4.7%, nearing the 19-month high of 4.75% hit last week. This sustained upward movement of the pricing anchor is becoming one of the biggest risks for AI-driven stock markets in Asia. 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 single week, the MSCI Asia-Pacific Index fell in 17 out of 20 weeks, with an average decline of 1.7%. Warnings from history: 5 years, 20 instances, 17 declines The negative correlation between U.S. Treasury yields and Asian stock markets is not a new market discovery but a repeatedly verified trend. Data indicates that in the past five years, when the 10-year U.S. Treasury yield rose by 20 basis points or more in a single week, the MSCI Asia-Pacific Index fell in 17 out of 20 weeks, with an average decline of 1.7%. This statistical regularity has been reaffirmed recently, with last week's market performance continuing this pattern. Hebe Chen, an analyst at Vantage Global Prime, pointed out, If there is chaotic volatility in the global bond market, it will inevitably impact the Asian region, especially as the AI frenzy develops, with markets like Taiwan and South Korea increasingly linked to the U.S. technology cycle and capital flows. The core issue lies in the "structural fragility" of Asian AI stocks. Chen further analyzed, The recent gains in Asian stock markets have largely concentrated in the technology and AI sectors, which are precisely the most sensitive market segments to rising capital costs, discount rates, currency fluctuations, and the fundamental global economy. Transmission mechanism: Three pathways elucidate how U.S. Treasury yields impact Asian AI stocks Pathway one: Valuation recalibrationhigher discount rates, lower present values. Long-term U.S. Treasury yields act as an anchor for the pricing of global risk assets. When the yield on the 30-year U.S. Treasury jumps from below 5% to above 5.3%, all valuation models for growth assets reliant on future cash flows must be recalculated. AI companiesespecially those that have yet to achieve stable profitability in hardware and model developmentare far more sensitive to changes in discount rates than traditional industries. The widening decline in Nasdaq futures during the Asian session (Nasdaq futures -0.4%, S&P -0.2%) reflects this immediate pressure. Pathway two: Rising financing costsdebt-driven AI expansion model under pressure. The expansion of AI infrastructure heavily relies on debt financing. Over the past week, as the yield on the 30-year U.S. Treasury rose from below 5% to above 5.3%, any AI infrastructure projects dependent on long-term debt financing will face higher interest costs. KB Securities Chief Strategist Lee Eun-taek pointed out that while large tech companies may continue to invest to avoid being left behind in the AI race, higher interest rates could prompt the financial institutions providing funds to scale back their financing. Pathway three: Reversal of capital flowsfunds returning from emerging markets to U.S. Treasuries. When risk-free interest rates rise above 5%, U.S. Treasuries become a highly attractive asset class. This increases pressure for funds to flow back from emerging market stocks to the U.S. bond market. On August 18, South Korea's KOSPI institutional investors recorded a net sale of 785.4 billion won in a single day, while foreign investors and retail investors made net purchases of 86.5 billion won and 731 billion won, respectivelythis mass withdrawal by institutions is a direct reflection of this logic. Additionally, yields on U.S., German, French, and Japanese bonds are all rising, loosening the pricing benchmarks across the board. The carry-trade logic of borrowing in yen to buy global assets began to backfire as Japanese bond yields approached 3%the yield on Japan's 5-year bonds rose to 2.18%, a historical high, while the 10-year yield reached 2.945%, the highest since 1996. Three driving forces behind the yield surge First, the surge in bond issuance by AI companies and the increase in U.S. Treasury supply. According to Castle Securities data, AI companies have issued approximately $1.5 trillion in bonds this year. Meanwhile, last week the U.S. Treasury was forced to issue $25 billion in new 30-year bonds at a yield of 5.216%, the highest bid yield for this type of transaction since 2001. Second, a resurgence in inflation expectations. Brent crude prices have risen to $91.24 per barrel. The U.S.-Iran temporary ceasefire agreement officially expired on August 17, with negotiations over the Strait of Hormuz still stalled. The University of Michigan's one-year inflation expectations remained above 4% for the fifth consecutive month. Third, increased uncertainty in Federal Reserve policy. Castle Securities warned that the Federal Reserve's reluctance to further tighten monetary policy keeps long-term bond yields at multi-year highs. Although CME data shows a 63% probability of maintaining rates in September, there is still a 37% chance of a rate hike. Wells Fargo Investment Research has adjusted its expectations, now anticipating a 25 basis point increase by the Federal Reserve this year. Key threshold: The "warning zone" of 5%-5.3% for the 10-year U.S. Treasury yield KB Securities Chief Strategist Lee Eun-taek provided a clear risk framework at the August 18 press conference: the sustained break of the U.S. 10-year Treasury yield above the 5.0% to 5.3% range will become a key warning signal for the AI investment cycle. Lee explained that once the 10-year U.S. Treasury yield surpasses 5%, it will reach its highest level since the 2007 financial crisis; if it exceeds 5.3%, it will be the highest in 25 years. In this interest rate environment, capital providers may shift from pursuing risk assets to ensuring safe returns, thus triggering a contraction in the funding chain for the AI investment boom. As of August 18, the yield on the 10-year U.S. Treasury had risen to approximately 4.74%, leaving only about 26 basis points to the warning line of 5%. The downward trend in the global bond market is ongoing, with increasingly heightened concerns about the U.S. fiscal situation. From a broader macro perspective, the current surge in long-term bond yields reflects three structural pressures: investor concerns over soaring government expenditures, a significant increase in the supply of long-term Treasuries, and the reality that inflation has consistently exceeded the Federal Reserve's targets over the past five years. These factors are not temporary disturbances but may exert lasting structural forces that suppress the valuations of risk assets. Key turning points: Global PMI and Jackson Hole as variables Although the Asian markets have shown some resilienceanalysts from DBS Bank noted that strong corporate earnings, the ongoing AI frenzy, and a more dovish stance from the Federal Reserve all provide supportthis buffering effect may be limited. Charu Chanana, Chief Investment Strategist at Saxo Bank, warned: Asia may currently be able to temporarily avoid the shock, but it is not completely immune. If U.S. Treasury yields continue to rise, this resilience will be tested. The global Purchasing Managers' Index (PMI) data set to be released this Friday, as well as Federal Reserve Chair Waller's first keynote speech at the Jackson Hole Global Central Banking Conference later in late August, will be critical variables determining whether U.S. Treasury yields can continue to rise and whether Asian AI stocks can hold their ground.