US chip stocks slide as government borrowing costs hit multiyear highs

Chip stocks led a sell-off on Wall Street on Tuesday as long-term borrowing costs across major economies hit multi-decade highs amid rising concerns over mounting public debt and inflation triggered by the Iran war.

The blue-chip S&P 500 slipped 0.6 per cent and the tech-heavy Nasdaq 100 fell 1.6 per cent, with high-flying stocks linked to the AI investment boom among the worst performers.

Memory and computer storage stocks Sandisk and Western Digital, which have surged over the past year, lost 9.8 per cent and 7 per cent, respectively. Chipmaker Nvidia fell 2.2 per cent. The Philadelphia Semiconductor index, which tracks major US chip companies, dropped 5.6 per cent.

The moves came as the yield on 30-year US Treasuries rose as high as 5.34 per cent on Tuesday, its highest since 2007, having been below 5 per cent at the start of last month. It later retreated to 5.29 per cent.

“If [government bond yields] keep climbing, they will keep a lid on the US equity bull market,” said Mike Zigmont at Visdom Investment Group.

Fast-growing companies are particularly vulnerable to higher bond yields, which depress the value of future cash flows in financial models.

The bond market sell-off has not been confined to the US.

The 30-year German Bund yield has hit 3.78 per cent, its highest since the Eurozone crisis in 2011. French yields of the same maturity on Tuesday rose 0.03 percentage points to 4.9 per cent, their highest since 2008.

“The bond market is indeed getting nervous,” said Vincent Mortier, chief investment officer at Amundi, Europe’s largest asset manager.

Mortier pointed to “growing concern on the fiscal trajectories of many countries where growth is subpar, inflation sticky . . . and levers to improve the fiscal situation are not obvious”.

In the UK, the 30-year gilt yield rose as much as 0.04 percentage points to 5.86 per cent, within touching distance of a post-1998 high that it reached in the early weeks of the Iran war.

In Japan, 30-year yields rose as much as 0.08 percentage points to 4.16 per cent on Tuesday, close to their highest ever.

Government borrowing costs have jumped since the start of the US-Iran conflict earlier this year, as higher energy prices have prompted fears of a prolonged global inflation shock.

Brent crude prices closed above $90 a barrel on Monday for the first time in two weeks and rose to about $91.13 on Tuesday, weighing on government bonds.

“Long-end yields have largely been following oil prices” in recent days, said Mohit Kumar, chief European economist at Jefferies. “As oil goes to $90 and above, inflation concerns start to dominate.”

He added that “the background of fiscal concerns also remains”.

The ballooning size of governments’ debts has been weighing on long-term borrowing costs in recent weeks, as the US debt pile nears $40tn and investors fret that governments might be forced into additional spending to protect businesses and consumers from the economic cost of higher energy prices.

“Investors are losing patience with fiscal profligacy,” said Jonas Goltermann, chief markets economist at Capital Economics.

The shift higher in long-dated bond yields meant that the US government last week was forced to pay the highest interest rates since 2011 to sell 30-year bonds.

Anshul Pradhan, head of US rates research at Barclays, said: “We think there are three factors at play [in the long-end Treasury sell-off]: the budget deficit outlook, AI-related corporate issuance and the changing Treasury buyer base.”

Big Tech companies have increasingly been turning to foreign debt markets to finance their enormous spending on AI investments, with a particular focus on issuing long-dated debt. Barclays expects total investment-grade issuance in 2026 to hit a record $1.9tn, compared with last year’s $1.44tn.

Recommended

Pradhan said “the scale and maturity of AI-related corporate borrowing” at the longer end of yield curves was contributing to “investors requiring more compensation to absorb [corporate and government] supply”.

The sell-off in longer-dated debt has been accompanied by a steepening in yield curves for government bonds globally, as the difference between short-term and long-term borrowing costs has widened.

Some analysts said the popularity of a “steepening trade”, where investors bet on that difference continuing to widen, was itself contributing to long-end yields pushing higher.

Mortier said Amundi had been running a steepener position for some time and planned to stick with it. Short-dated government bonds “should perform, as central banks will be more dovish than what the markets expect, while long-dated ones should continue to show weakness”, he said.