The Reason for the Sudden Shift in Bond Market Sentiment: "A Very Large Change May Have Begun"

It's not that they're wrong...
Anyone can say things like this after the fact.
But we really need to be on high alert.
Foreigners are buying up massive amounts of bonds in Korea as well,
but honestly, we can't know their true intentions.
Personally, I think we are near a short-term bottom.
In the long term... honestly, it's scary.
The Reason for the Sudden Shift in Bond Market Sentiment: "A Very Large Change May Have Begun"
[Overseas Bonds] 2026/10/26 10:54
(Seoul=Yonhap Infomax) Reporter Kwon Yong-uk = While the steep rise in global bond yields has been the biggest topic in financial markets this year, the atmosphere has shifted dramatically in recent weeks. Experts diagnose that a very large change in economic trends may have begun, which is interpreted as being consistent with Warren Buffett's investment direction in the stock market.
According to Yonhap Infomax on the 26th, the US 10-year Treasury yield was trading at 4.97% as of this morning. Yields have shown a recent surge, reaching as high as 5.36% earlier this month, but have since fallen sharply.
The yield on Japanese government bonds with the same maturity has dropped significantly from 3.12% earlier this month to the current 2.80% level. German government bond yields also plummeted by 30bp from 3.66% at the end of last month to 3.36%.
The UK 10-year government bond yield currently stands at 5.36%, down nearly 20bp from 5.53% earlier this month.
Suddenly, the bond market is telling a different story than before.
Investors interpret this as assets moving toward safe-haven government bonds of major countries as real cracks appear in some financial markets due to the AI craze and high interest rates.
Sachin Gupta, a global portfolio manager in charge of rates and foreign exchange at Pimco, evaluated the recently observed buying trend in the bond market as highly justified.
He explained, "The market overestimated the possibility of central banks raising interest rates, but is now realizing that higher borrowing costs are starting to affect interest-rate-sensitive sectors outside of tech stocks."
The Australian Financial Review (AFR) observed, "Investors have suddenly turned to a defensive stance," adding, "A very large change may have begun, and this will be an absolutely unpleasant process."
In fact, cracks have appeared in certain technology sectors, such as neo-cloud data center operators like CoreWeave, and the stress from high interest rates has been reflected in widening spreads in some areas of the corporate bond market.
According to AFR, approximately $5 billion worth of US corporate bond issuances have been canceled in recent weeks.
Furthermore, issuance rates for the riskiest borrowers in the speculative-grade (junk bond) market soared to their highest levels since the pandemic last week.
Gupta said, "As the global average bond yield approaches 7%, investors are looking at other asset classes," adding, "It is a natural progression to begin questioning the expected returns compared to government bonds, which carry much less risk than stocks."
He added, "High-quality bonds are undervalued, so we believe our clients want to allocate more weight to defensive assets."
Points have also been raised that the peak of government bond yields in major countries like the US coincides with the period when the level of debt being poured into AI investment increased and doubts about the expected return on that investment rose sharply.
Nick Perez, Chief Investment Officer (CIO) of Vantage Point, a Singapore-based macro asset manager, warned, "If investors' concerns about AI construction eventually lead to an investment slowdown, this will ripple through global economic growth."
He projected, "The stock market has thus far reflected the AI investment craze as a growth opportunity that will drive profits," and "If capital expenditure slows down, it will ease the pressure on inflation and corporate debt issuance."
He emphasized, "The key question is whether this slowdown will lead to a growth shock and a deeper correction in the stock market, creating a meaningful rotation of funds from growth stocks to value stocks."
The rotation of funds from growth stocks to value stocks is also a phenomenon that appeared when the dot-com bubble burst in the early 2000s.
CIO Perez urged, "In a difficult economic and credit environment, investors should prefer companies with stronger cash flows and balance sheets."
This rotation of funds is already being witnessed in the US stock market.
The stock price of Berkshire Hathaway, which Warren Buffett led until his recent departure from day-to-day management, hit an all-time high last week.
Buffett remains the honorary chairman of Berkshire and still participates in investment decisions. He prefers defensive portfolios such as railroads, utilities, and insurance, which is why Berkshire is considered a typical blue-chip stock.
As recently as last April, Berkshire's stock price significantly underperformed the S&P 500 index amid the tech stock rally, but it has recorded a return 2.5 times higher than this index over the past six months.
In relation to this, Bank of America (BofA) predicted, "We should pay attention to Berkshire's stock price," and "The market will maintain a 'risk-off' state until mid-next month, when the results of the US midterm elections and whether the war in Iran escalates become clearer."
BofA emphasized, "A market environment will continue where stock prices fall, bond yields fall, and fear rises."