Key facts
- US stocks stalled as bond yields hit a 24-year high.
- The term premium on 10-year US Treasury debt reached its highest level in 12 years.
- Most Federal Reserve policymakers saw more interest rate rises ahead in September.
- Fed Governor Christopher Waller stated additional rate hikes will likely be needed.
- TSMC's quarterly revenue beat forecasts.
- Samsung reported a more than 700% annual rise in operating profit.
US stocks stalled on Wednesday and early Thursday as rising bond yields continued to pressure markets, with the latest Federal Reserve minutes indicating that most policymakers anticipate further interest rate increases.
Markets have adjusted their expectations for Fed tightening in recent weeks but still anticipate three more hikes over the coming year, beginning in December. Reinforcing this outlook, Fed Governor Christopher Waller stated on Thursday that additional rate hikes are likely necessary to bring inflation down to the Fed's 2% target, though he noted flexibility regarding the pace.
While bond markets found some relief on Wednesday after a 10-year Treasury auction was deemed acceptable, yields had previously reached another 24-year high earlier in the day. A 30-year bond auction is scheduled for Thursday.
Treasury Secretary Scott Bessent has suggested that the recent bond market movements are more global than US-specific. However, the "term premium" on 10-year debt, which accounts for investor uncertainty beyond Federal Reserve interest rates, has climbed again to its highest level in 12 years.
Wall Street stocks pulled back on Wednesday after setting new records earlier in the week. The focus has shifted to the upcoming earnings season and the ongoing financing deals within the AI sector between chipmakers and their clients. Reports have detailed debt financing arrangements between Broadcom and OpenAI, and similar discussions between Broadcom and Anthropic. This follows earlier reports of SpaceX and Nvidia arranging up to $40 billion in chip financing.
The increasing reliance on debt for AI infrastructure development, perceived by some as "vendor financing," raises questions about the sustainability of the AI boom as companies report earnings. Despite this, Taiwan's TSMC reported quarterly revenue that once again surpassed high forecasts on Thursday. South Korea's Samsung also reported a significant increase in operating profit, rising more than 700% year-on-year. However, Samsung shares fell more than 1% on indications that the pace of growth and chip price increases may be slowing.
The term premium on 10-year US Treasury yields, representing the additional compensation investors demand for holding bonds to maturity, reached its highest point since 2014 this week, according to the New York Fed's model. While the rise in nominal Treasury borrowing rates has largely been attributed to revised expectations for the Fed's interest rate path, the spike in the term premium reflects broader concerns about increasing debt levels, political risks, and uncertainties surrounding long-term government financing.