US 10-Year Yield Falls Despite PPI Shock

Tech Stocks Sold on Fears AI Boom Is Peaking

Money Flows Into Safe-Haven Treasuries

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U.S. 10-year Treasury yields fell even after September consumer and producer price data came in well above market expectations.

As of 4 p.m. on October 16, the yield on the 10-year Treasury was trading around 5.08%. The benchmark yield had been well above 5.3% as recently as October 14, but dropped sharply after the release of the September CPI and PPI data. Typically, short- and long-term yields rise together when inflation accelerates and concern grows over policy-rate increases. Investors tend to sell Treasuries to reflect the risk of further tightening.

U.S. September PPI, often seen as a leading indicator for consumer prices, rose 6.3% from a year earlier. That was the highest level since December 2022. Core PPI, which excludes energy and food prices, rose 0.7%, far above the market forecast of 0.3%. Core CPI data released a day earlier also showed a 2.6% increase from a year earlier, fueling concern that inflation may remain elevated longer than expected.

CNBC said the average Wall Street estimate for September core personal consumption expenditures inflation, based on the CPI and PPI figures, stands at 0.32%. That compares with 0.25% in August. “The market’s earlier expectation that U.S. inflation would stabilize from the second quarter of next year is starting to waver,” Lee Eun-taek, an analyst at KB Securities, said.

The Federal Reserve is unlikely to raise interest rates in October ahead of the November midterm elections. The market, however, expects a rate increase in December. “This is a time when investors also need to keep in mind the possibility of additional hikes after December,” Ahn Ye-ha, an analyst at Kiwoom Securities, said.

Even so, experts point to demand for safe-haven assets and concern over slowing growth in the technology industry as reasons Treasury yields have moved lower. U.S. tech stocks have tumbled in recent sessions, wiping out more than $1 trillion in market value from major technology shares in a week. As investors move out of volatile equities and into Treasuries, the appeal of government bonds as a safe-haven asset is coming into sharper focus.

At a deeper level, doubts over whether the artificial intelligence industry can sustain its growth are also weighing on Treasury yields. Mohamed El-Erian, chief economic adviser at Allianz, said investors are increasingly seeking safe assets as nominal rates hit their highest levels in years and signs of credit stress emerge in vulnerable sectors. He added that concern is especially high over whether the technology sector, one of the twin engines of U.S. economic growth, can maintain solid momentum.

Shim Seong-mi, Korea Economic Daily reporter smshim@hankyung.com