Micron delivered an impressive set of results, with both revenue and guidance coming in significantly above expectations, yet the market reaction was unusually calm. Behind the dulling of good news, pricing power is being firmly taken over by macro funds interest rates. The intraday yield on the U.S. 10-year Treasury once climbed to 5.34%, setting the highest level since 2002. The sharp rise in the risk-free rate is reshaping the valuation framework across the entire market.
The strong upward move in long-end yields is not driven solely by expectations for Federal Reserve policy. The massive scale of U.S. Treasury issuance, combined with the substantial funding demand brought by AI infrastructure development, is fueling intense competition for liquidity in the global capital pool. When demand-side absorption becomes differentiated while inflation persistence remains, bond yields are pushed and held persistently at high levels.
For equities and crypto assets, a 5.3% risk-free return is like an invisible gravitational field. When funds can earn attractive returns in safe assets, risky assets must deliver even more exaggerated growth prospects to match the discount rate. The AI hardware sector, which had already been heavily priced in with optimistic expectations, naturally shows more caution in the face of expensive capital costs.
The key problem now has shifted to when long-end U.S. Treasury yields can truly peak. Until there is a tangible easing in long-end funding costs, various risk assets likely need to find support under a more stringent liquidity assessment.
The strong upward move in long-end yields is not driven solely by expectations for Federal Reserve policy. The massive scale of U.S. Treasury issuance, combined with the substantial funding demand brought by AI infrastructure development, is fueling intense competition for liquidity in the global capital pool. When demand-side absorption becomes differentiated while inflation persistence remains, bond yields are pushed and held persistently at high levels.
For equities and crypto assets, a 5.3% risk-free return is like an invisible gravitational field. When funds can earn attractive returns in safe assets, risky assets must deliver even more exaggerated growth prospects to match the discount rate. The AI hardware sector, which had already been heavily priced in with optimistic expectations, naturally shows more caution in the face of expensive capital costs.
The key problem now has shifted to when long-end U.S. Treasury yields can truly peak. Until there is a tangible easing in long-end funding costs, various risk assets likely need to find support under a more stringent liquidity assessment.