US National Debt Tops $40 Trillion, Will It Be a Market Trigger? Heo Jae-hwan, Eugene Investment & Securities MD, Outlook

The 30-year US Treasury yield has returned to its pre-COVID-19 pandemic level of 2007, raising concern that the situation is changing fundamentally. Market noise about the safety of US Treasuries is growing considerably. Experts diagnose that rising US Treasury yields are generating noise about market stability.

Behind rising yields lies the implication that the US economy is not bad. Therefore, while stock investments may be shaken by rising yields alone, the risk of a major sell-off or crash is judged to be limited. The speed and volatility of the yield increase are expected to be the key variables determining stock declines.

Considering that US nominal economic growth is close to 6%, yields up to the low 5% range are not expected to seriously harm the US economy. The analysis holds that a US Treasury yield of around 4–5% is a level the market can reasonably tolerate.

Treasury Secretary Bessent's buyback of Treasuries is evaluated as a meaningful step that reduces the burden on long-term debt. It bears similarities to what Treasury Secretary Janet Yellen did in 2022. However, geopolitical uncertainty and policy ambiguity remain, so the effect may be limited.

Factors limiting the effectiveness of current policy include the defense spending burden from President Trump's aggressive remarks regarding the Iran war. Chair Jerome Powell's failure to give a clear signal on rate hikes, even though inflation exceeds the target, also acts as a factor hindering policy results.

Growth cannot continue forever while debt keeps expanding, and US government debt currently exceeds 100% of GDP. As debt grows alongside growth, the private sector effectively shoulders the debt burden, which is negative news for growth. Yet given cases such as Japan, whose government debt exceeds 200% of GDP, the focus should be on the burden on the private economy and its growth impact rather than government debt itself.

This could push up interest rates on private housing and auto loans. It could also raise funding costs for AI companies, creating a risk of slower growth. These factors could act as a brake on the US in its AI leadership competition with China.

This is analyzed as a problem that first requires an end to the war.

The absence of forward guidance from the Fed is one factor pushing up Treasury yields. Given Chair Powell's disposition, a very clear signal is not expected, but if hawkish messaging shows resolve to control prices, the rise in long-term rates could pause.

There are two key points to watch in Nvidia's earnings release. First, whether Nvidia can continue to maintain its overwhelming share of the GPU market. This is directly tied to whether the speed and efficiency of its next-generation GPU, 'Rubin,' can be sustained. Second, whether the gross margin of over 70% can be maintained without declining.

Nvidia's price-to-earnings ratio (PER) has de-rated from 40x at the start of the year to around 18–19x now. This is interpreted as a sign that investors' strong conviction or optimism about future growth is weakening, despite Nvidia posting good earnings. Accordingly, Nvidia's stock is expected to trade in a range without strong enthusiasm or major disappointment.

A structure is emerging in which SK Hynix's domestic share price leads the price of its American Depositary Receipts (ADRs). This can be seen as a process in which the gap that previously made ADRs excessively expensive relative to the domestic shares is being resolved. This is interpreted as a positive signal that the domestic shares are following the ADRs, showing semiconductor sovereignty resides in Korea.

If additional shareholder return policies such as dividends continue to emerge, the end of July is analyzed as very likely to have been the clear bottom for the stock. Expectations for further shareholder return policies tied to third-quarter earnings are expected to support the share price bottom.

Although the stock has passed its bottom, a steep rally like the one in the first half of the year is unlikely to recur. Instead, a gradual, step-like rise is expected, which can be seen as a transition from growth stocks to value stocks. Gains centered on dividends and shareholder returns are analyzed as likely to take this gradual, step-like shape.

The concentration of money into the semiconductor sector seen in the first half is unlikely to recur. This is because the growth rate of semiconductor exports has recently shown signs of slowing. This could lead to slower earnings upgrades, dispersing market leadership and suggesting that buying could spread across the broader sector.

Korean pharma and bio can rise when semiconductors take a breather, but their ability to sustain independent gains is limited, according to the analysis. The domestic bio sector serves as an alternative investment destination when the semiconductor sector is neglected.

During this period, institutional changes such as the listing-tier system reform and cleanup of penny stocks are scheduled to proceed. These changes are expected to help clear out weak companies within the KOSDAQ market and separate the wheat from the chaff, positively affecting the overall clean-up and re-rating of the market.