▲ AI PRISM* Personalized Economic Briefing
* Editor's note: AI PRISM (Personalized Report & Insight Summarizing Media) is an artificial intelligence-based personalized news recommendation and summary service developed with support from the Korea Press Foundation. It selects and provides six news items tailored to each reader type.
[Key Issue Briefing]
■ Government Bond Yields Plunge: The yield on the 10-year U.S. Treasury note fell below 5% for the first time in about a month, signaling a clear shift toward safe-haven assets. A sharp selloff in technology stocks combined with credit concerns surrounding Big Tech also drove up Korean investors' purchases of U.S. bonds.
■ Credit Bonds Gain Ground: With bond yields holding at high levels, maturity-matched corporate bond exchange-traded funds that seek interest income through maturity have emerged as an investment alternative. Large inflows of institutional money into the credit bond market are also supporting supply and demand.
■ Big Tech's Funding Battle: As major Big Tech firms rapidly expand AI capital spending, they have exhausted their available funding options, including internal cash and corporate bond issuance. Despite forecasts that free cash flow will turn negative, the companies say demand remains strong and are racing to secure financing.
[News of Interest to Financial Product Investors]
- Key points: The yield on the 10-year U.S. Treasury note fell about 19 basis points from the previous session to 4.953% on the 22nd local time, dropping below 5% for the first time since Sept. 23. The single-day decline was the largest in three years and seven months, or since March 10, 2023, while the two-year yield, which is sensitive to monetary policy, fell 18.8 basis points to 4.635%. Analysts attributed the move to safe-haven buying, as Meta's free cash flow turned negative on expanded AI investment, deepening doubts about the profitability of large-scale capital spending, while fiscal concerns in France and tensions in the Middle East added to the pressure. Meanwhile, Korean investors bought a net $1.371 billion of U.S. bonds through the 22nd of this month, exceeding the $1.363 billion in net purchases for all of last month.
2. Targeting Yields in the High 4% Range: Maturity-Matched Corporate Bond Products Draw Attention
- Key points: The yield to maturity on Mirae Asset Global Investments' TIGER 28-04 Corporate Bond (A+ or Higher) Active ETF stood at 4.76% as of the 22nd. The fund invests in domestic corporate and financial bonds maturing in April 2028, and is structured to recover principal and interest on its holdings at maturity before liquidating. It is also the only maturity-matched corporate bond ETF listed in Korea that has broadened its investment universe to include A+ rated debt, securing additional credit spread, while about 70% of total assets are allocated to bonds rated AA- or higher. Institutional inflows are underpinning supply and demand in the corporate bond market, with SK hynix (000660.KS) executing 900 billion won of the 3 trillion won in bond management funds it has entrusted to six asset managers.
3. Copper ETFs, Beneficiaries of AI, Stall as Oversupply Becomes a Variable
- Key points: TIGER Physical Copper and KODEX Copper Futures (H) closed at 15,535 won and 9,755 won, respectively, on the 23rd, down 5.1% and 4.9% from a month earlier. The declines followed a 3.93% drop in spot copper prices on the London Metal Exchange to $14,215 per ton on the 22nd, from $14,797 a month earlier. The International Copper Study Group forecast that the global surplus in refined copper will grow about 3.5-fold to 368,000 tons next year from 104,000 tons this year. Ok Ji-hoe, an analyst at Samsung Futures, projected an average copper price of $14,000 per ton next year, saying high interest rates would cap prices in the first half.
- Key points: Combined capital spending at five companies — Microsoft, Alphabet, Amazon, Meta and Oracle — is projected to total $945.55 billion in January next year, about six times the level of January 2023. As a result, their free cash flow over the same period is expected to swing to negative $2.87 billion from $223.11 billion. Meta disclosed that it has committed close to $825 billion, or about 1,100 trillion won, to AI infrastructure, and its credit default swap premium jumped 8.9 basis points from the previous session to 119.3 basis points immediately after the announcement. Nvidia Chief Executive Jensen Huang stressed that the obstacle to expanding AI investment is funding rather than a lack of demand.
