KB Securities researcher Kim Il-hyuk advised investors to reduce exposure to artificial intelligence and growth stocks while increasing positions in defensive sectors like consumer staples and healthcare, as well as financial stocks, as US Treasury yields surged again. The US 10-year Treasury yield recently recorded levels above 4.7%, up from around 4.4% a month ago, driven by oil price increases from US-Iran conflict, fiscal burdens, and concerns over large-scale bond issuance. Market participants are concerned that the 10-year yield could test the 5% level again if current pressures persist.
US 10-Year Treasury Yield Climbs Above 4.7%
The US 10-year Treasury yield recently recorded levels above 4.7%, compared to around 4.4% a month ago. Treasury Inflation-Protected Securities (TIPS) yields, which reflect real interest rates excluding inflation effects, also rose to 2.428%, marking the highest level since October 2023. The term premium, which represents additional compensation for holding long-term bonds, remains below past peaks. If the term premium rises to levels seen in May while other conditions remain unchanged, the 10-year yield could surpass the 4.792% recorded in January 2025. Kim Il-hyuk stated that if bond issuance volume burdens increase further and yields break through previous highs, the market will begin to envision a scenario where yields rise to the 4.989% level formed in October 2023.
Futures markets currently reflect a 78.6% probability that the Federal Reserve will raise the federal funds rate at the September Federal Open Market Committee (FOMC) meeting. Multiple events that could influence US monetary policy direction are scheduled in succession: the regular FOMC meeting at the end of this month, the Treasury's Quarterly Refunding Announcement (QRA) on the 5th of next month, and the July Consumer Price Index (CPI) release on the 12th.
AI Industry Faces Token Pricing and Capital Cost Pressures
Rising interest rates create burdens for the AI industry. AI model providers face competitive pressure to lower token prices, which are usage fees. When market interest rates rise simultaneously, capital costs increase for companies that must invest large-scale funds in data centers and semiconductors. This dynamic recently appeared in Alphabet's earnings results, where market attention focused more on elevated capital expenditure plans than on strong cloud business growth. Analysts interpret this as the market beginning to view AI infrastructure investment from the perspective of capital cost burdens rather than growth potential.
Amazon's $25 billion corporate bond issuance on the 7th drew demand that fell short of expectations, which was interpreted as a similar signal. Concerns continue surrounding Oracle after its credit rating was downgraded. Oracle's credit default swap (CDS) premium rose to 210.8bp (1bp = 0.01 percentage point) at the time of the report, reaching a record high.
KB Securities Recommends Tactical Shift to Defensive and Financial Stocks
Kim Il-hyuk recommended tactical responses that reduce exposure to growth stocks with high interest rate sensitivity. He assessed that rather than modifying long-term investment strategies, investors should prepare for short-term risks, as oil prices and interest rate trends may vary depending on the course of the US-Iran conflict. As alternatives, he suggested sectors relatively less sensitive to economic changes, including consumer staples, healthcare, and financial sectors such as large banks and insurance companies. He explained that before confirming US monetary policy, Treasury supply, and inflation trajectories by early next month, it is advantageous to reduce exposure to stocks vulnerable to high interest rates. Kim Il-hyuk emphasized that tactical responses are needed — reducing growth sectors vulnerable to rising rates while expanding defensive and financial sectors — rather than large-scale strategic weight adjustments.
FAQ
What caused US Treasury yields to rise above 4.7%?
US 10-year Treasury yields surpassed 4.7% due to oil price increases from the US-Iran conflict, fiscal deficit burdens, and concerns over large-scale government bond issuance.
Why did KB Securities recommend reducing AI and growth stock exposure?
KB Securities researcher Kim Il-hyuk recommended reducing AI and growth stocks because rising interest rates increase capital costs for companies investing heavily in infrastructure, while AI model providers face competitive pressure to lower token prices, creating a dual burden on the sector.
Which sectors does KB Securities recommend for tactical portfolio adjustments?
KB Securities recommends increasing exposure to defensive sectors such as consumer staples and healthcare, as well as financial stocks including large banks and insurance companies, which are relatively less sensitive to economic changes and rising interest rates.
