Long-term yields form a plateau between 5.2% and 5.4%, with consumer prices unlikely to be the decisive factor for a decline
Last week, the 10-year US Treasury yield reached about 5.36% intraday on October 7, the highest since 2002, and closed at around 5.24% on Friday, remaining largely flat for the week. During the same week, the 3-year Treasury auction saw weaker demand, while the bid-to-cover ratios for the 10-year and 30-year Treasuries were 2.77 and 2.54 times, respectively, both above recent averages. Investors were willing to buy at yields around 5.3%, but strong demand did not significantly lower yields. According to the Federal Reserve Board's Kim-Wright model and the New York Fed's ACM model, about 75 to 80 basis points of the 10-year yield increase since July can be attributed to market expectations of higher Fed rates and sustained high levels, with the other half coming from investors demanding higher long-term compensation, or term premium. The latter has risen to its highest level since 2010, with the ACM model also showing it at the highest since 2014, reflecting expanded fiscal deficits, increased long-bond supply, and policy uncertainty. The last time long-term compensation was at this level was from 2009 to the first half of 2010: post-financial crisis, the US fiscal deficit approached 10% of GDP, and Treasury issuance hit record highs, with market uncertainty about economic recovery and the Fed's exit from easing. The 10-year yield rose to about 4% in April 2010; subsequently, the European sovereign debt crisis erupted, and safe-haven flows into Treasuries pushed the 10-year yield down to about 2.4% within six months, narrowing the term premium. During this period, the S&P 500 index fell by about 14%, while gold rose by about a quarter. The Investment Department believes that the current structure is different from when yields peaked in October 2023: then, it was primarily driven by rate hike expectations, and yields fell by about 1.2 percentage points within two months after the Fed pivoted. This time, the term premium accounts for about twice as much, and soft consumer prices can only reduce the part driven by rate hike expectations. The market expects the September core CPI to rise 0.2% month-on-month, and if the result meets or is below expectations, rate hike expectations may cool. However, historically, a significant pullback in long-term yields requires a reduction in long-bond issuance in the Treasury's quarterly refinancing announcement in early November or an increase in hedging demand. In terms of the rate path, the market expects a 20% probability of a rate hike in October and a cumulative 85% by December. The New York Fed survey shows one-year inflation expectations rising to 3.9%, the highest since May 2023.
Sell-off triggered by OpenAI's revenue figures stems from incomparable numbers; AI demand remains strong, but the hardware chain is starting to differentiate based on payment capacity
On October 8, the Financial Times reported that OpenAI's annualized revenue at the end of September was about $50 billion, lower than the widely cited $70 billion. The Nasdaq 100 Index fell 1.4% and the Philadelphia Semiconductor Index fell 3.4% on the same day. According to OpenAI, third-quarter annualized revenue grew 70-77%, with enterprise business growing 107%. The $70 billion figure was a conversion used by investors for comparison with Anthropic, not OpenAI's own metric. OpenAI later told investors that its year-end target is at least $70 billion, with growth slowing but still high. Demand has not weakened, but the market is scrutinizing the ultimate payers: Reuters reported that Anthropic's second-quarter revenue was $11.5 billion, surpassing OpenAI's $6.7 billion for the first time. Even if Anthropic's cloud channel revenue is calculated on a net basis, the gap is still about 1.6 times. OpenAI's compute plan to 2030 is about $750 billion, with a second-quarter operating loss of $12.3 billion. The funding gap is shifting from equity financing to supplier-led private credit, with Broadcom arranging over $50 billion in financing for custom chips for OpenAI, and SpaceX planning to borrow about $40 billion for Nvidia chips, with its credit default swap reaching a record high. The market has reflected this differentiation: Oracle fell 5.5% and CoreWeave fell 7.77% on October 8, about twice the decline of Nvidia. The Investment Department believes that overall demand for AI hardware has not changed, but orders concentrated on single model companies or those requiring financing for customers should have a higher risk premium compared to chip and optical communication suppliers that diversify across multiple cloud service providers. Anthropic will hold a pre-IPO investor day on October 14, and its prospectus is expected to be publicly available by October 23-25, marking the first audited full disclosure from a leading model company. Before that, unaudited annualized revenue figures could still cause significant daily volatility in AI-related stocks.
Memory price increases start to suppress consumer electronics demand, but the long-term positive outlook remains unchanged, with valuation expansion still pending
Samsung's preliminary third-quarter results show operating profit of about 10.74 trillion won, slightly above market expectations, while revenue of about 195 trillion won was below the expected 201-202 trillion won. Profits were driven by AI server memory, but revenue fell short due to lower sales of consumer electronics like smartphones and TVs, which were affected by rising memory costs. According to Nikkei Asia, Apple cut iPhone 18 Pro series component orders by 15-20% in October, with the series priced $100 higher than the previous generation. Research firm TrendForce estimates that component costs rose about 38%, mainly due to memory. Nvidia also raised the price of a desktop AI computer with 128GB of memory by about 75%. Memory price increases are revenue for suppliers but a cost for end products, and once these costs are passed on to consumers, demand for consumer electronics begins to fall. Last week, SK Hynix fell 11.78%, Samsung Electronics fell 7.34%, and the KOSPI fell 7.52%. Foreign investors net sold in the Korean spot and futures markets for two consecutive days, and Micron fell 4.27%. The Investment Department believes that AI server demand continues to support memory manufacturers' margins, and the 2027 supply-demand tightness forecast remains unchanged. The decline in consumer electronics demand provides a reason for the market not to assign higher valuations; the long-term positive outlook for memory remains unchanged, with valuation expansion still pending clearer 2028 supply-demand dynamics and whether fourth-quarter contract prices meet research firms' expectations of a 10-15% sequential increase.
Trump's promise not to attack Iran before the election does not mean reduced Middle East risks; oil prices still depend mainly on regional tensions and actual transport flows
On October 8, Trump stated he would not attack Iran before the November 3 midterm elections, causing Brent crude to fall from about $105 to $103, though it still rose about 2.7% for the week. Driving oil prices are regional tensions: the Houthi rebels attacked Riyadh airport three times in a week, and over the weekend, they struck Dammam airport, claiming to have hit two Saudi Aramco facilities. Saudi Arabia conducted airstrikes on Yemen's capital, Sanaa, and Pakistan and Turkey pledged to send troops to defend Saudi Arabia. The Strait of Hormuz has seen nine tanker attacks this month, with traffic falling to the lowest in over two months, and Hurricane Idalia in the Gulf of Mexico reduced US offshore crude production by over 510,000 barrels. On the other hand, Gulf countries (excluding Iran) have restored their oil and fuel exports to over 80% of pre-war levels, and the G7 released 100 million barrels from reserves. Trump also announced a Russia-Ukraine energy ceasefire and proposed increasing Russian diesel exports. After the weekend attacks, Brent crude initially rose and then fell in the Asian session on October 12, and Saudi Aramco did not confirm any facility damage. The market currently views the conflict between Saudi Arabia and the Houthis as a regional event that has not affected physical supply. In September 2019, when Saudi Aramco facilities were attacked, halting half of its production, Brent crude rose 14.6% in a day, but largely retraced within two weeks. Only events that actually reduce supply will sustainably push up oil prices. The spread between Brent and WTI crude has widened to about $13, typically ranging from $3 to $5, with risk premiums concentrated on Middle Eastern crude that needs to be transported by sea. The Investment Department reminds that two types of events will truly change oil price trends: substantial damage to major Saudi energy facilities or Red Sea shipping, and a re-escalation of US-Iran tensions after the midterm elections, with the third US aircraft carrier expected to arrive by late October. The US and Iran have not yet reached an agreement, with Iran stating that the US has accepted some of its seven conditions but considering the response insufficient.
Long-term positive outlook for Hong Kong stocks remains unchanged, but short-term risks include momentum chasing and weak buying support
After the resumption of Stock Connect on October 8, southbound funds net bought about HK$6.5 billion on the first day and only about HK$300 million on the second day, totaling about HK$6.8 billion, similar to the average weekly pace of about HK$11 billion this year, far below the approximately HK$30 billion per week in 2025. The Hang Seng Index fell 1.43% on the first trading day and rebounded 1.79% on Friday, rising 0.71% for the week, while the Hang Seng Tech Index is still down about 24% for the year. Incremental funds remain a missing piece for Hong Kong stocks. Local liquidity is also tight: HKMA Chief Executive Eddie Yue stated that if the interest rate differential between Hong Kong and the US remains significant, the linked exchange rate mechanism will cause the Hong Kong dollar to weaken. DBS expects the Hong Kong dollar to test the 7.85 weak-side convertibility guarantee as soon as this month. In 2025, the weak-side guarantee was triggered 12 times, reducing the banking system's aggregate balance to about HK$54 billion and pushing up interbank rates. The current aggregate balance is at a similar level, making interbank rates more sensitive to fund outflows. Policy-wise, the National Development and Reform Commission stated it will increase countercyclical adjustment, and the China Securities Regulatory Commission plans to lower the threshold for equity funds from RMB 200 million to RMB 50 million, but these measures mainly target long-term A-share funds, indirectly benefiting Hong Kong stocks. The Investment Department reminds that Hong Kong stocks have been falling this year, and market expectations for policies and funds have repeatedly disappointed before and after the National Day. Weakness may persist until incremental funds return, and there is limited buying support during corrections. The Investment Department's stance is that the long-term allocation value of Hong Kong stocks remains unchanged, with short-term focus on southbound funds and the Hong Kong dollar exchange rate, rather than the magnitude of index corrections. Historically, turning points for Hong Kong stocks during US rate hike cycles often occur around the last Fed rate hike, as in January 1995 and October 2018. The timing of the end of the Fed's rate hike cycle is a key direction to watch for Hong Kong stocks.
※ Extracted from the Investment Research Weekly (12 October 2026) prepared by our Investment Department. For general reference only; this does not constitute investment advice or an offer. Please refer to the Disclaimers.
