US long-term interest rates at highest level since 2007; capital rotation accelerates despite flat stock indices, shifting focus to bank and semiconductor selection | 2026.9.28 …
As high interest rates take hold, the market enters a phase where stock selection progresses behind the resilience of indices
US long-term interest rates are rising to levels not seen in decades. In the US bond market on the 25th, the 10-year Treasury yield closed at 5.17%, its highest level since 2007, while the 30-year Treasury yield also climbed into the mid-5% range at 5.49%. The 30-year bond hit its highest level since 2004 on the 24th, and the 2-year Treasury yield is also on an upward trend at 4.81%.
The sell-off last week pushed the 10-year Treasury yield up by approximately 0.23 percentage points over three trading days. In addition to weak demand at the 5-year note auction, the Treasury Department’s buybacks of 20-year and 30-year bonds fell short of the planned amounts, raising concerns about supply and demand. The sell-off eased slightly on the 25th due to a decline in crude oil prices, but levels remain high.
Interest rate hikes are also accelerating in Japan. On the 24th, after the long weekend, the yield on the newly issued 10-year Japanese Government Bond (JGB) temporarily rose to 3.055%, marking its highest level in about 30 years. The previous day’s sell-off in US bonds spilled over into the Tokyo market, and comments from Fed Governor Waller on the 23rd suggesting a high probability of additional rate hikes also fueled the selling.
The stock market as a whole has not shown a major collapse. The forward price-to-earnings ratio (PER) of the S&P 500 has fallen from 22 times at the beginning of the year to 19 times, but the equity risk premium—the difference between the earnings yield of 5.2% and the real 10-year Treasury yield of 2.6%—has remained relatively stable at around 2.6 percentage points over the past two years. This, however, comes with the caveat of excluding short-term sharp decline phases.
FOMC raises rates for first time in three years; Chair Warsh begins operational reforms
The US Federal Open Market Committee (FOMC) decided unanimously on September 16 to raise the target range for the federal funds rate by 0.25 percentage points to 3.75–4.00%. This is the first rate hike in about three years, since July 2023. Following the rate cut last December, the rate had been held at 3.50–3.75%, and it remained unchanged during the first five meetings of this year.
The statement pointed out that price levels remain high and explained that the measure is intended to accelerate the return to the 2% target. According to the projections of FOMC participants, the Personal Consumption Expenditures (PCE) price index growth rate for 2026 is expected to be 3.7% and 2.3% for 2027, with the unemployment rate remaining at a low level of around 4.1%. Chair Warsh also expressed the view that, looking at the financial environment broadly, it is difficult to call it restrictive.
In the dot plot released at the same time, 16 out of 18 participants anticipated additional rate hikes within the year, with four of them expecting two more hikes. No rate hikes are priced in for 2027 and beyond. Since taking office, Federal Reserve Chair Kevin Warsh has refrained from submitting his own dot. At the July meeting, three members had cast dissenting votes in favor of raising rates.
In June, Chair Warsh began operational reforms, including a review of forward guidance, and launched five task forces covering areas such as communication and the balance sheet. He aims to have recommendations by the end of the year. An additional rate hike at the October meeting is priced into the market with a probability of about 70%.
Bank of Japan raises rates to 1.25%; intervention alert for yen in 157–160 range
At its Monetary Policy Meeting on September 18, the Bank of Japan decided to raise the policy interest rate by 0.25 percentage points to around 1.25%. This is the second rate hike in three months since the June meeting, accelerating the pace of rate hikes, which had been roughly once every six months since March 2024. The move aims to curb the upside risk to prices caused by high crude oil prices and a weak yen.
The vote was 7 to 2. Member Asada dissented, arguing that the rise in the consumer price index excluding fresh food is below 2% and that the economy lacks strength. Member Sato argued that the economic and price situation is not accelerating significantly and that a rate hike at this timing is inappropriate. Governor Kazuo Ueda explained the background of the decision at a press conference after the meeting.
The dollar-yen exchange rate is hovering at a nervous level in the 157–160 range. Immediately after the BOJ meeting, some viewed the presence of dissenting votes as a factor for yen selling. On the New York market on June 17, the yen temporarily hit 160.79, breaking below the low seen before the intervention on April 30, marking the weakest level for the yen against the dollar in one year and 11 months.
On April 30, the government and the Bank of Japan carried out yen-buying intervention as the currency plunged from the high 160s to the 155 range. According to the Ministry of Finance, the total amount of intervention from April 28 to May 27 was approximately 11.7 trillion yen. The view that vigilance against additional intervention is likely to intensify as the rate approaches 160 is spreading in the foreign exchange market.
US and China extend trade truce by two months; President Xi makes first state visit to US in 11 years
US-China relations are maintaining an appearance of “managed tension.” Following summits in Busan, South Korea, in October 2025 and Beijing in May of this year, President Xi Jinping visited Washington for a three-day schedule in September. This was his first state visit to the US in 11 years since 2015, and President Trump personally welcomed him on the airport tarmac.
On the first day of the visit, US Treasury Secretary Bessent announced that the trade truce would be extended by two months until January 10 of next year. The previous deadline was November 10. The truce was agreed upon at the Busan summit, involving a reduction in tariffs from triple-digit levels and the suspension of China’s export restrictions on rare earths and critical minerals.
The extension period is shorter than the more than six months previously anticipated, and Chinese stocks fell on the 24th. Experts interpret this as the US side’s intention to maintain pressure. President Xi stated that the two countries should be partners rather than adversaries, and the Chinese side mentioned a “new joint arrangement” regarding trade, but did not indicate a timeline for implementation.
Many evaluate the visit to the US as lacking concrete results, as no agreement was reached on addressing risks surrounding AI. The European Chamber of Commerce points out that the issue of lacking standard procedures for rare earth export permits remains unresolved. With the APEC summit in Shenzhen, China, in November, the G20 summit in Miami in December, and the US midterm elections in November, the stance toward China could be swayed.
Capital flows into CPUs due to AI agent demand; AMD market cap hits $1 trillion
Even if stock indices do not move significantly, capital rotation between sectors by institutional investors is progressing internally. Interest, which was once focused solely on GPUs, has expanded to CPUs, memory, and cybersecurity. The catalyst was the popularity of the autonomous AI “Muse,” launched by Meta Platforms on September 8.
Muse was downloaded approximately 730,000 times in the five days since its release, topping the free rankings on Apple’s App Store. On the 21st, Meta shares rose 11.4%, marking the largest gain since April 2025. The view has spread that demand for CPUs will swell in scenarios where AI agents operate browsers and applications.
On the same day, AMD closed up 9.95% at $615.52, with its market capitalization exceeding $1 trillion for the first time. Intel rose 12%, and Arm Holdings rose 17%. Intel CEO Lip-Bu Tan stated that they can only supply half of the CPUs demanded by cutting-edge AI companies.
AMD’s revenue for the April-June quarter was $11.54 billion, up 50% from the same period last year, with the data center division up 107% to $6.7 billion. However, the actual CPU resources used by Muse are unclear, and estimates for the CPU-to-GPU ratio vary tenfold, from 1:4 to 1:40. AMD’s forward P/E ratio is approximately 41x, significantly higher than Nvidia’s roughly 16x.
Micron to report earnings on the 30th; long-term contracts and short-selling arguments intersect
Major semiconductor memory manufacturer Micron Technology will announce its fiscal 2026 fourth-quarter earnings after the US market closes on the 30th. The company expects revenue of $50 billion (plus or minus $1 billion) and a gross margin of approximately 86%. Revenue in the previous quarter was $41.46 billion, swelling to about 4.5 times that of the same period last year.
Expectations for the earnings are high. In the previous quarter, DRAM prices rose by the low 60% range, and NAND rose by the mid-80% range. The company expects supply-demand tightness to continue beyond the 2027 calendar year. The stock price hit $1,096.16 on the 22nd, a 5% gain, and has risen 14% since the start of September. The market is also focused on the outlook for the next fiscal year.
The focus is on 16 Strategic Customer Agreements (SCAs). These are essentially 5-year “take-or-pay” contracts, with approximately 20% of DRAM shipments and one-third of NAND shipments fixed until 2030. The cumulative minimum revenue for 14 of these is approximately $100 billion, backed by $22 billion in customer deposits and letters of credit.
Bearish arguments also remain strong. Prominent investor Michael Burry revealed on the 22nd that he had increased his short positions on companies like Micron. Citing comments from Acer executives in Taiwan that increased production by Chinese firms could put downward pressure on memory prices, he suggested that the current supply shortage is temporary and that production will catch up within the next two years. Meanwhile, Citigroup raised its target price to $1,300 on the 23rd, predicting the price peak in the April-June 2027 quarter.
Solidigm IPO speculation and Oracle’s notice reflect the light and shadow of investment
Reuters reported on the 25th that SK Hynix’s US subsidiary, Solidigm, could potentially conduct an initial public offering (IPO) as early as next year. The valuation could reach up to $150 billion, with proceeds of $15 billion. A proposal meeting to compete for the lead underwriter role was held this week, but the plan is in the early stages, and the scale and timing depend on market conditions.
If realized, it would be one of the largest US semiconductor-related listings ever, surpassing Arm (valued at approximately $54 billion) which went public in 2023, and Cerebras (valued at approximately $56 billion) which listed this year. Solidigm was established in 2021 after SK Hynix acquired Intel’s NAND business for approximately $9 billion. Its core business is SSDs for AI data centers.
Meanwhile, differences in execution capability are surfacing in AI investment. It was revealed on the 24th that Oracle sent a force majeure notice to a company under Blue Owl Capital, the developer of the large-scale “Project Jupiter” data center in New Mexico. The stock closed down 3.47% that day, with shares falling over 7% during trading hours.
The notice is considered to be aimed at securing room to delay payments if the 2028 operational target is not met. The background is the delay of the gas pipeline operation to February 2027. Oracle explained that the plan is on schedule and that this is a standard measure to preserve contractual rights. Blue Owl issued a statement saying that financial obligations remain unchanged.
SoftBank Group interest rates up to 9.75%; AI fundraising swells
Fundraising to support AI investment is also swelling. SoftBank Group announced on the 24th that it will raise a total of $11.1 billion through dollar-denominated and euro-denominated corporate bonds. The breakdown is $10 billion in dollar bonds and 1 billion euros in euro bonds, with interest rates reaching a maximum of 9.75%, the highest level ever for the company’s bonds of the same maturity.
It is expected to be the world’s largest single issuance for speculative-grade bonds. Demand reached approximately four times the issuance amount. Initial demand of over $20 billion was reported on the 22nd, but this was a non-binding initial expression of interest. The funds raised will be used for investment in OpenAI, and the company has indicated a policy of investing nearly $65 billion.
Anthropic is also rushing to secure computing resources. According to The Information, the company has entered into initial discussions to lease up to 1 gigawatt of computing capacity from Stream Data Centers, a data center developer majority-owned by Apollo Global Management. The company aims to become a direct tenant to reduce its reliance on cloud providers.
There is a plan to introduce TPUs designed by Broadcom and Google, but the possibility of using Nvidia GPUs remains, and the terms have not been finalized. Some view that a 1-gigawatt scale facility would require at least $40 billion in capital investment, and it has been reported that Google may provide credit guarantees, but the scope of this remains unclear.
A phase of disciplined capital allocation to identify real demand and margins of safety
In an environment where interest rates remain high, the focus is on how to secure the spread between a company’s earning power and its cost of capital. The concept of a “margin of safety,” emphasized by investor Seth Klarman in his book of the same name, is being reconsidered. Domestically, against the backdrop of rising long-term interest rates, the stock prices of major banks are firm, and the question is whether they can secure a return on equity (ROE) that exceeds their increased cost of capital, bolstered by improvements in interest margins.
Some investors are advocating for an “80/20” allocation, placing 80% of their portfolio in stable assets such as bank stocks and bonds, and directing the remainder toward semiconductor memory. However, it is necessary to note that the prices of existing bonds fall as interest rates rise. In the memory sector as well, bullish and bearish arguments coexist regarding the shift in supply and demand, making selection based on earnings and supply-demand indicators essential.
This week in the US, the August Personal Consumption Expenditures (PCE) price index, September employment statistics, and the ISM manufacturing index will be released. These will serve as material to gauge the possibility of an additional rate hike at the October meeting. Domestically, the minutes of the Bank of Japan’s July meeting will be released before the market opens on the 28th, and a town hall meeting featuring Richmond Fed President Barkin is also scheduled.
In the Tokyo market on the 28th, the Nikkei Stock Average opened higher at 66,505.94 yen and briefly reached 67,034.74 yen, topping the 67,000 level for the first time since August 18. The market reacted favorably to the 1.41% rise in the Philadelphia Semiconductor Index in the US at the end of the previous week. As it was the final trading day with rights for interim dividends, buying for dividend rights was also easily attracted to bank stocks and others. Rather than chasing index levels, a stance of identifying assets close to real demand backed by contracts and earnings is required.