US Inflation Tops Forecasts, but 10-Year Treasury Yield Falls as Growth Slowdown Fears Spread

10-year yield falls to the 5.1% range

High rates weigh on AI financing

CoreWeave jitters hit chip stocks too

A hotter-than-expected US inflation reading fueled concern that interest rates may rise further, but long-term Treasury yields fell instead. The move suggests investors are increasingly worried that additional tightening could hurt not only inflation but also economic growth. Markets are also starting to scrutinize the financial strain on AI infrastructure companies that expanded through heavy borrowing.

According to the financial investment industry on Oct. 16, the US 10-year Treasury yield rose above 5.3% immediately after the consumer price index report on Oct. 14, then reversed course to finish at 5.19%. In Asian trading the following day, it fell as low as 5.105%. That erased all of the post-CPI gains and extended the decline.

The drop in long-term yields signals that the bond market has started looking beyond further tightening to the economic outlook that follows. Short-term yields are more sensitive to near-term policy-rate expectations, while long-term yields also reflect expectations for future growth and inflation. Lee Eun-taek, an analyst at KB Securities, said long-term yields can fall on concern over slower growth even if short-term yields rise when investors expect rate hikes to continue.

The inflation data itself reinforced expectations for tighter policy. US CPI rose 3.7% in September from a year earlier, above the 3.6% forecast. Core CPI, which excludes food and energy, climbed 2.6%, topping the 2.5% estimate. Lee added that fading expectations for inflation to slow to around 2% next year helped drive the stock-market decline.

Rate futures also showed investors bracing for another increase. The probability of a 0.25 percentage-point rate hike at the October meeting stood at 29.3% in CME FedWatch data. That was up 11.6 percentage points from 17.7% on Oct. 8.

The burden of high rates is also spreading to companies seen as beneficiaries of rising AI investment. CoreWeave is a leading example. The company uses borrowed money to secure Nvidia graphics processing units and build data centers, then provides computing services to AI companies. Its model relies on spending first and repaying debt with fees collected from customers later.

That leaves the company more exposed if profitability in the AI business weakens or funding costs rise. CoreWeave's corporate bond prices have plunged recently, pushing yields above 15%. The company's credit risk is also drawing attention in the credit-default swap market, where investors hedge against default.

South Korean chip stocks are not insulated from that trend. Data-center spending by companies like CoreWeave feeds demand for Nvidia AI accelerators, which in turn supports memory demand for products such as high-bandwidth memory from Samsung Electronics and SK Hynix. If investment slows, the demand outlook that has supported those companies' earnings could also come under pressure.

Those concerns hit large-cap chip stocks in South Korea's market the previous day. The Kospi fell 7.57%, while Samsung Electronics and SK Hynix dropped 9.48% and 11.06%, respectively. Circuit breakers, which temporarily halt trading, were triggered during the session on both the Kospi and Kosdaq markets.