Is a New Round of Selling Storm Approaching? The Formidable Enemy of the AI Bull Market Finally Appears the "Anchor of Global Asset Pricing" Breaks Above the 5% Super Threshold

On September 14, the U.S. 10-year Treasury yield, known as the "anchor of global asset pricing," rose as high as 5.012% intraday before falling back to 4.960%. In early Asian trading on September 15, the 10-year U.S. Treasury yield once again broke through the important 5% threshold. After the 10-year U.S. Treasury yield broke above the critical 5% threshold, it is more likely to usher in a period of high-level tug-of-war and accelerated divergence in asset performance. Especially before the energy shock and the United States' continued large-scale expansion of fiscal deficits clearly ease, the conditions for quickly replicating the sharp decline in yields seen in late 2023 are not yet sufficient. The U.S. fiscal deficit continues to expand and interest expenses repeatedly hit record highsin the first 11 months of this fiscal year, cumulative net interest expenses of the U.S. Treasury exceeded the $1 trillion mark for the first time in history. Combined with the intensifying geopolitical conflict in the Middle East pushing oil prices higher and resonating with Federal Reserve rate hike expectations, this finally pushed the U.S. 10-year Treasury yield to the 5% threshold. As market debate intensifies over whether the 10-year U.S. Treasury yield will see a "2023-style brief peak followed by a steady decline" or a "2000s-style financial crisis," what investors truly need to judge is whether the Federal Reserve will start a new rate hike cycle and how long high rates will persist, as well as whether companies and financial institutions can withstand rising financing costs with cash flow, and even whether the U.S. Treasury can continue "borrowing new to repay old" under persistently high interest rate pressure. An evolution that investors should guard against even more is that persistently high 10-year and longer-term U.S. Treasury yield indicators gradually turn global equity market valuation pressure into real debt servicing pressure escalation; the September 16 FOMC decision will become an important checkpoint for testing this trend. For the global stock market bull market trajectory since 2023 brought about by the AI investment wave, persistently high and continuously climbing 10-year U.S. Treasury yields can be called the "strongest enemy" of global equities. The 10-year U.S. Treasury is called the "anchor of global asset pricing" because of its benchmark status in the dollar financing system and in medium- to long-term cash flow valuation. The U.S. Treasury market is massive and actively traded, and the dollar is widely used for international financing and reserves, so changes in its yields have cross-market influencedollar corporate bonds usually reference Treasury yields of similar maturity plus credit spreads, mortgage rates are affected by Treasury and mortgage-backed securities pricing, and stock and real estate valuations are highly sensitive to the discount rate applied to future cash flows. When this benchmark rises while earnings and rent expectations do not improve in tandem, asset prices face downward pressure. The impact also transmits overseas through dollar financing costs, currency hedging, and cross-border capital flows; different currencies, maturities, and credit risks determine the degree to which specific assets are hit. From a theoretical perspective, the 10-year U.S. Treasury yield is equivalent to the risk-free rate indicator r on the denominator side of the DCF valuation model, an important valuation model in the stock market. When other indicators (especially cash flow expectations on the numerator side) do not change significantlyfor example, during earnings season, when the numerator side is in a vacuum period due to a lack of positive catalystsif the denominator level is higher or continues to operate in the historically extreme high range above 5%, then the valuations of risk assets closely tied to AI, such as technology stocks, high-yield corporate bonds, and cryptocurrencies, face the threat of collapse. If the Federal Reserve returns to rate hikes, can it stabilize 10-year and longer-term U.S. Treasuries? Behind the 25 basis point rate hike expectation is the Federal Reserve's "battle for credibility." The current macro mix supports the Federal Reserve in remaining vigilant while also preserving limited room for adjustment. U.S. August CPI rose 3.4% year over year, and core CPI rose 2.4% year over year, but the month-over-month gain in core CPI rose from 0.2% in July to 0.3%; over the same period, nonfarm payrolls increased by 162,000, and the unemployment rate remained at 4.1%. This means inflation improvement is still uneven, while employment has not shown obvious pressure forcing an immediate policy shift toward easing. The subsequent impact of the energy shock will depend on whether it continues to spread through transportation costs, corporate pricing, and wage negotiations. Rate hikes can restrain demand and stabilize inflation expectations, but increasing crude oil supply and easing shipping disruptions require other, more complex conditionsnamely, geopolitical conditions more complex than monetary policy and fiscal measures. This situation, in which supply disruptions bring about both high inflation expectations and strong employment resilience, leaves long-end U.S. Treasury yields lacking a sufficiently clear catalyst for a sustained and rapid decline. The information from this Federal Reserve FOMC meeting most likely to change market direction is the policy path after the rate hike. The pre-meeting market snapshot showed that federal funds futures implied about an 88% probability of a 25 basis point rate hike; if this action materializes, the target range will rise from 3.50%3.75% to 3.75%4.00%. The high expected probability reduces the surprise element of a single rate hike itself, but does not eliminate the risk of subsequent consecutive tightening. In the view of some veteran Wall Street analysts, a combination more conducive to market digestion would be a modest rate hike paired with a clear data-dependent stance, allowing investors to interpret it as a limited and moderate monetary policy adjustment to guard against inflation recurrence. If the dot plot and press conference further point to a higher and longer-maintained policy rate, corporate financing and stock valuations will need to readjust to an upward shift in the entire rate path, and the pressure will be far greater than from a single 25 basis point adjustment. Rate hikes and a decline in long-end yields can occur simultaneously, and the key lies in policy credibility. Long-term Treasury yields are roughly composed of the average expected future short-term nominal rate and the term premium; the latter reflects the additional risk compensation required to hold long-term bonds. If a rate hike increases the market's confidence in controlling inflation and reduces concerns about medium- to long-term inflation, subsequent catch-up hikes, and interest rate volatility, the return required on long bonds may decline. Conversely, if the policy explanation is clearly disconnected from economic data and triggers investor doubts about the Federal Reserve's independence, long-term financing costs may rise even if the short-term policy rate remains unchanged. Trump-nominated Federal Reserve Chairman Warsh needs to prove that decision-making is consistent with inflation and employment goals. Whether he can turn limited tightening into more stable long-term expectations will determine whether this rate hike has a market-stabilizing effect. "I keep asking myself: 'What exactly can become the catalyst to push yields down?' Apart from a traditional recession, it is really hard to find another factor," Greg Peters, co-chief investment officer at PGIM Credit, said in an interview. "The conditions for keeping yields high or even continuing to rise are fully in place." Zach Griffiths, head of investment grade and macro strategy at research firm CreditSights, pointed out that "many underlying factors together determine that continued rising rates are currently the path of least resistance." He added that the 10-year U.S. Treasury yield could further move toward 5.5%. Strategists at TD Securities led by Gennadiy Goldberg said that, given that the market has already priced in Fed rate hike expectations to a large extent, yields are not expected to spiral significantly higher because of a rate hike, but unless the economy shows signs of deterioration, long-term Treasury yields should generally remain at elevated levels in 2027. Mike Bell, head of market strategy at RBC BlueBay Asset Management, also believes that if oil prices continue to climb, the bond selloff could become "more severe." "It is still too early to say bond yields have peaked." For stock bulls, the relatively most perfect scenarioa 2023-style "steady peak and decline in 10-year U.S. Treasury yields." Meanwhile, a market veteran who earlier this year accurately predicted that the 10-year U.S. Treasury yield would reach 5%Steven Barrow, head of G10 strategy at Standard Bankonce again issued a bearish forecast for the bond market. Barrow raised his year-end forecast for the 10-year U.S. Treasury yield to 5.2% and expects it to rise to 5.3% in the first quarter of 2027. "My structural view is that we are in a 'higher for longer' rate environment," Barrow said. "One factor that makes me firmly believe yields will break above 5% is that we already rose to near 5% without inflation data significantly exceeding expectations." Given that the Federal Reserve faces pressure from U.S. President Trump to cut rates, how the Fed responds during Kevin Warsh's chairmanship will become a key variable. Barrow expects the Fed to hike in September, then hike again in December, after which officials will keep short-term rates steady until the end of 2027. "If the Fed does not start taking action, then we will face more serious economic and financial market problems," Barrow said. "Given the ongoing conflict in the Middle East, in my view, all signs still point to higher inflation." For the optimistic downward trajectory that stock investors long forthe "2023-style steady peak and decline" that once helped drive the global bull marketfundamentals and policy expectations need to work together. That year, the 10-year U.S. Treasury yield approached 5% in October and then fell below 4% by year-end, accompanied by a reassessment of inflation and monetary policy prospects. Now, the market is discussing whether another rate hike is needed, and the policy environment is clearly different from then. To repeat a rally in bonds that also benefits risk assets, energy prices need to cool, the core inflation trend needs to improve, and employment and corporate earnings need to remain resilient. A one-day touch of 5% followed by a pullback only shows that this level attracted buyers, and is not enough to confirm a sustained downward trend. If yields ultimately fall because of a recession, deterioration in corporate earnings and credit quality may offset the benefits of a lower discount rate on the DCF valuation side, and stock and bond performance will also differ from late 2023. From the Treasury's massive debt to the AI infrastructure financing frenzy: cash flow determines who can withstand high rates. Fiscal financing pressure may make this period of high rates last longer than the market hopes. After total U.S. federal debt exceeded $40 trillion, the key variables affecting yields are the new deficit, the scale of maturing debt to be refinanced, the maturity of bond issuance, and the price investors are willing to pay to take on long-term Treasuries. As low-coupon debt gradually matures and is refinanced at higher rates, the government's interest burden will gradually increase; if the fiscal revenue-expenditure gap remains large, the market will need to continuously absorb new bonds. Treasury buybacks can improve the liquidity of inactive bonds and smooth cash management and issuance arrangements, but their effect depends on the accompanying financing method and cannot replace fiscal revenue and expenditure adjustment. Even if the Federal Reserve stabilizes inflation expectations through one rate hike, long-term bond supply and the term compensation demanded by investors may still limit the extent of any yield decline. The other side of a "2023-style steady peak and decline in 10-year U.S. Treasury yields"namely, the "2000s-style stock market bear crisis accompanied by continuously climbing 10-year U.S. Treasury yields"is most worth learning from in terms of how losses amplify along leverage and financing chains. At that time, falling real estate prices and mortgage losses gradually evolved into systemic pressure through securitized products, financial institution leverage, and reliance on short-term financing. The transmission path to watch this time is higher interest expenses eroding borrowers' cash flow, tighter refinancing conditions, declining collateral value, and then margin calls and forced asset sales. To judge whether risks are escalating, one should simultaneously observe credit spreads, debt rollover conditions, and short-term financing markets. A 5% Treasury yield alone is not enough to determine a crisis; only when cash flow gaps cannot be covered through normal financing can interest rate pressure turn into a credit event. Once demand for safe havens strengthens, 10-year and longer-term U.S. Treasury yields may even decline, while risk assets suffer greater losses. For the 10-year and longer-term U.S. Treasury yield curve, the more critical structural force comes from "fiscal deficits + AI bond issuance" competing for the global pool of duration bond funds: the U.S. Treasury balance is approaching $40 trillion, and the fiscal 2026 deficit is expected to be about $1.9 trillion$2.1 trillion; at the same time, AI-related debt has approached 15% of this year's investment-grade bond issuance. Goldman Sachs said that within the year, Google parent Alphabet and Amazon.com and other hyperscale cloud service providers (AI Hyperscalers) have issued about $194 billion in bonds, and it expects their direct financing supply in 2026 may reach about $250 billion. More broadly, AI Hyperscalers such as Alphabet, Amazon, and Meta have issued nearly $220 billion in bonds so far this year, more than double the $108 billion for all of 2025. Based on available comparable data, this can be called a "record high for the same period or a record-breaking issuance pace for the same period." The unprecedented AI investment surrounding the construction of AI computing infrastructure may extend economic resilience, but it will also amplify financing differences among companies. The Federal Reserve's July statement still described capital investment and productivity growth as strong, which provides some support for the economy to withstand higher rates. Large technology companies with abundant cash may continue to advance strategically significant computing capacity construction, thereby maintaining demand for chips, power facilities, and data centers; projects that rely on borrowing, financing leases, and continuous fundraising are more vulnerable to interest expenses and refinancing constraints. If AI capital expenditure remains strong while productivity improvements have not yet fully translated into lower costs, investment demand may temporarily delay the suppression of aggregate demand by high rates. From this, it follows that the AI computing industry chain is more likely to see divergence driven by financing capacity and collection qualitythat is, actual order growth, capital expenditure, and actual free cash flow must be examined and tested over the long term. This logic regarding the long-term AI revenue trajectory and whether cash flow is sound is also the core reason why U.S. cloud computing giants performed far better than the Philadelphia Semiconductor Index on Monday. Some of the most central cloud giants (Hyperscalers) in this infrastructure boom rose against the trend on Monday: Google parent Alphabet closed up more than 3%, Microsoft rose 1.97%, and Meta gained about 2.7%. Although Amazon closed down slightly by 1.26%, its resilience was still far better than that of many chip stocks. They sit on massive cash flow and can continue to earn ROIC from already-built facilities. A judgment framework more worth adopting in the coming weeks is to observe Treasury yields, credit spreads, and earnings expectations together. If easing inflation drives yields lower while credit spreads remain stable and earnings expectations remain resilient, the "2023-style top" will gain fuller support, and the environment for long-duration Treasuries and high-quality growth assets will also improve; if real rates and term compensation remain high, allocation advantages are more likely to favor assets with ample cash flow, lower leverage, and smaller near-term refinancing needs; if yields fall but credit spreads widen significantly, priority should be given to identifying recession and financing pressure. What is more likely to appear first is asset screening under high rates, followed only later by confirmation of the macro cycle direction. Whoever can convert growth into cash flow usable for interest payments, debt repayment, and reinvestment will be better positioned to withstand the upward shift in the anchor of global pricing.