The AI supercycle is driving North Asia rates higher through accelerating investment, bond issuance, and higher global rates. China rates have found their footing amid higher PMIs. NBS’s Manufacturing PMI has returned to the expansionary territory of 50.3 in June. In particular, AI development is expected to drive further investment into related infrastructure, such as data centers and grids. Notably, hi-tech and equipment manufacturing PMIs are gaining traction. The global AI demand is also aiding the New Export Order sub-component, which returns to 50.1 after a three-year contraction.
Such development requires both public and private investment. Beijing has sold CNY109bn 7Y CGBs this week, with another batch of 2Y, 5Y, 10Y, and 30Y bonds scheduled for issuance over the next five trading days. Looking ahead, heavier issuance is expected to cushion further downward pressure on CGB yields. Bond sales should accelerate after sluggish fiscal spending in the first five months, where government bond outstanding growth has already fallen from peak of 21.9% YoY in July 2025 to 15.1% in May 2026. It appears that authorities are backloading spending for the second half of 2026 as uncertainty fades. Such optimism is likely to partly offset still-weak consumption demand. A slow yet steady growth trajectory should keep CGB yields range-bound going forward.
Likewise, Korea’s KTB yields are bouncing, with the 10Y yield rising by 14bps and reaching 4.21% yesterday. The 30Y KTB yield even hit 4.44% as of market close. Several developments are driving the rapid repricing of long-end Korean rates. First, strong data prints point to firm economic growth. June’s outward shipment is up by 70.9% YoY amidst soaring semiconductor prices. Industrial production has fallen surprisingly, but this is not particularly worrisome as chipmakers are shifting towards advanced manufacturing. Inventories continue to fall due to soaring global demand.
Second, the KRW800trn investment from Korean semiconductor giants may signal higher bond yields. Although chipmakers may not finance the plan with bond issuance, the country-wide chip-related spending indicates strong growth momentum. Possible co-investment and industry support from the government could imply further KTB issuance alongside the already accelerating fiscal expansion.
Lastly, high-beta KTBs can hardly avoid the impact of higher global rates. 10Y UST and Bund yields are drifting higher amidst a hawkish tone from respective central bankers during the Sintra annual European Central Bank (ECB) conference. The ongoing investment into AI are keeping the DM economy buoyant. Other major central banks, including the Bank of Japan, are also on track with rate hikes. The subsequent won weakness may prompt foreign investors to slow their KTB purchases despite WGBI inclusion. 
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