Soaring Interest Rates Pressure Trump's Bold Move

The Trump administration recently attempted to stabilize oil prices through negotiations with Iran, but the market reacted coolly.

This suggests that the market has largely lost confidence in Trump's ability to mediate policy. The 10-year Treasury yield remained high, maintaining above 5.2%.

This economic robustness is attributed to strengthened fundamentals resulting from active AI-related investments. Although there are arguments for moderating the pace of AI investment, no actual decline in investment has yet been observed.

This, along with rising oil prices and inflation due to war, is a major reason for the declining popularity of Treasury bonds. To address this lack of demand for Treasury bonds, the U.S. attempted diplomatic efforts with China.

The Trump administration offered China unprecedented diplomatic courtesies and conciliatory measures to resolve the Treasury bond and oil price issues.

China was considered a key to mediating U.S. Treasury bond purchases and pressure on Iranian oil, and an agreement between the two countries was attempted in conjunction with demands for AI technology deregulation, but little progress was made.

This year, AI companies' investments exceeded $500 billion, with $200 billion alone allocated to large AI data centers.

With future AI investments projected to surpass $1 trillion, this astronomical investment scale continues to put pressure on the Treasury market.

Hyperscaler AI investments by big tech companies are expected to continue.

As a result, Treasury bond issuance is inevitable, and the popularity of U.S. Treasury bonds is gradually declining. Long-term bonds, in particular, are perceived as assets that can incur losses when interest rates rise, thus losing their investment appeal.

Doubts are raised about the feasibility of a deal to exchange Iran's nuclear abandonment for sanctions relief, and geopolitical tensions, such as threats to blockade the Strait of Hormuz, persist. Regulations on corporate bond issuance could slow AI competition, which is something President Trump does not want.

Analysis suggests that high oil prices, high inflation, and high interest rates are likely to persist for some time.

The U.S. stock market is holding up, led by AI stocks, but there are risks to further gains. It is necessary to discover new sectors beyond existing AI infrastructure, such as cooling stocks and optical communications, and to pay attention to the renewable energy sector along with policy changes in the U.S. after the midterm elections.

With the midterm elections a month away, 22 House seats are highly contested, and the Democratic Party is predicted to win.

If the Democrats gain control of the House, the Trump administration's legislative freedom would be significantly curtailed, and its policy momentum could weaken. This raises concerns about an early onset of Trump's lame duck period.