Why did the EU fall behind on rare earths? Connecting 5% US Treasury yields with the global economy

“Rare earths” and “5% US Treasury yields.”

At first glance, these two pieces of news seem completely unrelated, but in fact, both are themes concerning the “foundation” of the global economy.

Rare earths are essential resources that support the AI, EV, and defense industries. And US Treasury yields are said to be the benchmark that determines the flow of money around the world.

Today, I will break these two topics down in an easy-to-understand way from the perspective of a long-term investor.

Why did the EU fall behind on rare earths?

Rare earths are 17 types of rare metals that are indispensable for electric vehicle motors, wind power generation, AI servers, and defense equipment.

In particular, neodymium and dysprosium are used in magnets for high-performance motors.

Currently, China holds much of the world’s refining capacity, and Europe has long been dependent on that supply.

In other words, the problem is not “mining,” but the industrial base for “refining” and “processing.”

Due to environmental regulations and high costs, the EU lagged in investing in mineral refining within its own borders.

As a result, while promoting EVs and renewable energy, it faces the challenge of being dependent on overseas sources for critical minerals.

Why are they scrambling now?

There are three reasons behind this.

1. Rapid increase in AI data centers
2. Expansion of the EV market
3. Increase in defense demand

All of these require rare earths and critical minerals.

Europe is currently moving forward with the “Critical Raw Materials Act”, implementing policies to increase the ratio of mining and refining within the region.

In short, the conversation about rare earths is shifting from one about resources to one about industrial security.

Are there benefits for Japanese companies too?

Japan is not a resource-rich country.

However,

・Magnet technology
・Precision machining
・Recycling
・Materials development

In these areas, there are many world-class companies.

Rather than the resources themselves, companies with “high-value-added technology” may also be valued.

What is so significant about a 5% US Treasury yield?

Recently, I often see in the news that “the 10-year US Treasury yield is approaching 5%.”

This means that the “benchmark interest rate” for global money is rising.

For example, assuming you invest 1 million yen,

Stocks: Price fluctuations exist
US Treasuries: Around 5% (based on market interest rates)

If this happens, investors will rethink whether it is worth taking the risk.

That is why when Treasury yields rise, there are times when growth stocks are easily sold off.

At 5%, are stocks finished?

In conclusion, that is not necessarily the case.

What is important is not “high yields,” but “whether corporate profits can grow beyond that.”

Historically, even in eras of high interest rates, companies that increased their profits have seen their stock prices grow.

In other words, what you should look at is

・Interest rates
・Corporate profits
・Capital investment
・Productivity

This balance.

Actually, these two are connected

For both rare earths and Treasury yields, the common keyword is “capital investment.”

Building AI factories.
Developing power grids.
Building mineral refining plants.

Such massive investments require funding.

However, when interest rates approach 5%, borrowing costs also rise.

In other words,

Investment in critical minerals
↓
Factory construction
↓
Fundraising
↓
Impact of high interest rates

This sequence shows that they are actually connected within the same economy.

The perspective of a long-term investor

News can feel difficult when viewed in isolation.

But if you think of ‘resources’ and ‘interest rates’ as a single line, the global economy comes into view.

Behind AI, critical minerals are necessary, and the money supporting that investment is influenced by interest rates.

In long-term investing, it may be more important to look at where money and resources are heading rather than whether stocks went up or down today.

A word for today

It is not just AI that builds the future.

It is the resources that support that AI, and the capital invested in those resources.

The global economy moves on an invisible foundation.

Thank you for reading until the end.

If you found this helpful, I would be happy if you could give it a like!

Yu

*What is the 10-year US Treasury yield?

It is the yield on 10-year government bonds issued by the US government, and it acts as a ‘benchmark interest rate’ in global financial markets. When yields rise, it affects corporate funding costs and the stock market.

*What is the Critical Raw Materials Act?

This is a law created by the EU (European Union) to reduce its dependence on overseas sources for critical resources such as rare earths and lithium.

The goal is to stably secure critical minerals essential for AI, EVs, wind power generation, and the defense industry, and it is being promoted as a policy to strengthen mining, refining, and recycling within the EU.

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