US Long-term Treasury Yields Surpass 5%... A Sign of Recession or an Incentive for the AI Industry?

As US long-term Treasury yields recently show an upward trend, surpassing 5%, analyses have been raised regarding the impact that the yield curve inversion phenomenon will have on the future US economy. In a released video, Dr. Gwak Su-jong mentioned that if a yield curve inversion occurs—where the value obtained by subtracting short-term interest rates from long-term interest rates appears as a negative number—a recession could occur within 6 months to 1 year, according to research findings in the field of economics.

The Meaning of Yield Curve Inversion and the Optimistic Background of the US Economy

According to the video, high short-term interest rates mean a shortage of money in the market, and low long-term interest rates can be interpreted as having little hope for the future. Conventional monetary policy takes the form of keeping short-term interest rates low to supply liquidity, and maintaining high long-term interest rates when the economy grows. However, recently, US 10-year and 30-year Treasury yields have been rising, crossing the 5% line.

Dr. Gwak Su-jong cited the AI industry as the background for why the US economy may remain robust. The video explained that the US is maintaining high interest rates to attract funds for the AI industry, thereby sucking in capital from around the world. The analysis suggests that market indicators are recognizing the technological prowess of the US, which will lead the standards and rule-setting of future industries. Additionally, an optimistic outlook was presented, suggesting that the US economy could grow by 2.0%–2.5% in 2027 and achieve an average annual growth rate of 2.0% from 2027 to 2031.

The Impact of Rising Treasury Yields on Mortgages and the Real Economy

The rise in Treasury yields has a direct impact on the US housing market. The video analyzed that if the 10-year Treasury yield rises to the 5.25% level and the 30-year yield reaches 5.3%–5.5%, market mortgage rates could rise to as high as 7%–8%. This is because the 30-year mortgage rates, which Americans mainly use when purchasing homes, are based on the Fed base rate and Treasury yields.

Considering price stability (a 2% target), which is one of the objectives of the Fed, it was explained that it is optimal for housing prices to rise at a level of 2%–3% when taking inflation into account. Therefore, rising interest rates become a factor that lowers housing purchasing power. The video analyzed that in a situation where interest rates have risen, in order to purchase a house, real income must rise to a high level of over 5%, rather than nominal income.

Changes in the AI Industry Structure and the Variable of Labor Market Rigidity

Rising interest rates are also directly linked to the cost issues of the AI industry. A 20% rise in Treasury yields is associated with the rising costs for hyperscalers that must invest in the AI industry. Furthermore, the development of the AI industry is accompanied by changes in the labor market. The video mentioned the phenomenon where differences occur in the employment success rates of university graduates depending on whether they majored in AI-related fields, suggesting that entry into the AI industry is affecting the labor market.

In particular, it was pointed out that if the labor market is not flexible and is rigid, its ability to respond may decrease when an external shock occurs. In conclusion, it was explained that the recent rise in Treasury yields serves as a barometer showing housing rates, AI industry investment costs, and changes in the industrial and social structure of the US economy as a whole.