AI-Driven Corporate Bond Surge Fuels Treasury Yield Rise; Oil Adds to Uncertainty

As geopolitical risks flare up again, oil prices are strengthening. This raises concerns that higher energy costs could slow the pace of the decline in inflation and push interest rates higher over the long term. Higher oil prices can also raise logistics costs, placing added strain on the broader economy.

Prices are being heavily influenced by oil, and in the short term oil is expected to weigh significantly on the market. High oil price volatility increases uncertainty about price stability and is cited as a factor that could trigger turmoil in the bond market.

A sharp further rise in oil prices appears limited. Room for negotiation remains, and with the U.S. midterm elections approaching, analysts expect the U.S. government to avoid creating events that could hurt the market. Such political considerations could act as a brake on a sharp oil price spike.

The Federal Reserve is expected to keep watching macroeconomic indicators such as oil prices and avoid rushing into decisions. With additional inflation and employment data available before the September FOMC meeting, the Fed is likely to delay its rate decision as long as possible while reviewing that data. This reflects the central bank's intent to take a cautious approach in an uncertain economic environment.

The main reason the S&P 500 is near its highs is that corporate earnings growth confirmed in the recent earnings season continues. However, recent movements in oil prices and Treasury yields are clearly acting as factors that could weigh on the stock market. Despite solid corporate earnings, macroeconomic variables still pose a risk of triggering a market correction.

The stock market is expected to trend upward over the long term, but in the short term a strategy to catch technically favorable entry points is needed. Rather than simply following the market's flow, analysts say a careful approach to timing purchases is currently more effective. This suggests that short-term responses matter more during periods of high market volatility.

For major AI companies such as Anthropic and OpenAI, the most important question is whether they can expand monetization using their AI models to the extent the market expects even after their IPOs. This monetization capability is expected to be the biggest factor determining share price performance after listing. Analysts argue that technological strength alone makes long-term success hard to guarantee.

This is interpreted as Nvidia's strategy of directly supporting financing so its GPU customers can raise funds. In other words, it appears aimed at boosting GPU sales by helping key customers finance their infrastructure investments.

It will reportedly be structured by establishing special purpose vehicles (SPVs) and then attracting investors through equity or bond issuance. Through this financing platform, Nvidia aims to promote investment and growth across the AI ecosystem.

This year, big tech companies including Alphabet and Amazon have sharply increased corporate bond issuance to fund AI investment. These bonds absorb large amounts of market funding, which in turn forms a cyclical system that leads to higher Treasury yields. As the AI investment boom intensifies, the funding race among big tech companies is affecting even Treasury yields.

As corporate bond supply grows, investment demand is shifting from Treasuries to corporate bonds. This prompts the question of why Treasuries don't offer yields comparable to corporate bonds, naturally leading to a vicious cycle of rising corporate bond yields. As a result, this is putting pressure on overall interest rate levels to rise.

The AI ecosystem centered on Nvidia is gradually entering a credit cycle. As such financing platforms become commonplace in the market, differentiated interest rates among companies could become more pronounced. Over the long term, this rate differentiation could become a market risk within the AI ecosystem.