KOSPI jumps 3% as Treasury yields spike: why Asia may be pricing the wrong risk

Asian stocks opened Tuesday with two markets sending different signals.

South Korea’s KOSPI jumped more than 3% as trading resumed after a holiday, helping lift MSCI’s Asia-Pacific index outside Japan by 0.8%.

Yet bond markets moved in the opposite direction. The US 10-year Treasury yield climbed to around 4.73%, while the 30-year yield reached about 5.31%, its highest level in more than two decades.

Japan’s 10-year government bond yield touched 2.945%, a three-decade high.

The divergence highlights a growing tension between powerful AI-driven earnings and the rising cost of long-term capital across global markets.

KOSPI bulls are betting AI earnings can outrun rates

Korean equities have recovered sharply from July’s rout, with Samsung Electronics and SK Hynix at the centre of the move.

The fundamental argument remains strong. Macquarie Capital recently described the industry as facing the “worst memory crunch in history” and said it saw no signs of supply constraints easing within the next three years.

The firm also described AI inference-driven memory demand as “off the charts.”

That helps explain why investors have been willing to look through higher yields. If memory shortages persist, earnings growth at Korea’s biggest chipmakers could remain strong enough to offset some valuation pressure from rates.

Still, Citi is less comfortable than earlier this year.

Citi strategist Dirk Willer noted that the semiconductor-heavy KOSPI had previously met the firm’s definition of bubble-like conditions before dropping back below that threshold. Citi, which recommended taking profits in June, is now on the sidelines.

Willer said the firm remains “bullish but somewhat nervously,” reflecting uncertainty over whether the rebound is the start of another sustained advance or another swing in an unusually volatile market.

Bond markets say cheap money is not returning

The less comfortable signal is coming from government debt.

The rise in long-term Treasury yields is not simply a bet on another Federal Reserve rate increase. Softer US economic data has actually reduced expectations for an imminent move.

Instead, investors are demanding more compensation for inflation risk, heavy government borrowing, geopolitical uncertainty and growing competition for capital.

ING strategists Padhraic Garvey and Benjamin Schroeder said Treasuries remain under pressure, especially at the long end.

They noted that earlier moves above roughly 4.65% in the 10-year yield were often followed by reassuring signals from Washington about a possible resolution to the Iran conflict.

“This time, we’re not hearing the same,” the strategists wrote.

Asia’s next risk may be the cost of capital

BlackRock Investment Institute argues that strong equities and elevated bond yields are not necessarily contradictory.

AI-driven earnings can continue to support stocks even as the buildout itself increases demand for capital.

Governments, hyperscalers and companies are competing more aggressively for capital, and BlackRock believes long-term yields still have room to rise.

That matters for Korea’s technology-heavy market.

Samsung and SK Hynix can continue benefiting from exceptional memory demand, but higher long-term yields increase the discount rate applied to future earnings.

They also make the enormous investment required for AI infrastructure more expensive.