4 hrs ago
Surging US Treasury Yields Widen Emerging Asia Bond Gaps
US government bonds became less attractive in price because their interest rates, called yields, rose sharply.
This made the difference between US and Asian bond yields larger.
Investors may move money from Asian bonds into US bonds if they prefer the higher US returns.
That could weaken some Asian currencies and make it harder for local central banks to lower interest rates.
Higher interest rates can make borrowing more expensive for people and businesses.
Malaysia and Thailand saw especially wide gaps compared with US bonds.
Asian bond markets have not fallen as sharply as US Treasuries because inflation has remained stable and currencies have been resilient.
Strategists said Indonesia and the Philippines appear more vulnerable, although Asian markets overall have shown resilience.
The 30-year US Treasury yield reached its highest level since 2004, while the 10-year yield hit its highest since 2007.
Malaysia’s 10-year yield discount to US Treasuries widened to 125 basis points, the widest since 2007.
Thailand’s 10-year bond gap reached 290 basis points, nearing a record low, while Indonesia’s spread narrowed to 188 basis points.
Strategists warned that higher US yields could reduce inflows or trigger capital outflows from emerging Asian bond markets.
Asian markets have so far seen more modest yield increases, supported by stable inflation and resilient currencies.
- Who
- US Treasury investors, emerging Asian bond markets, regional central banks, and strategists including Stephen Chiu and Homin Lee.
- What
- A sharp rise in US Treasury yields has widened yield gaps with bonds in several emerging Asian economies, increasing concerns about capital outflows.
- Where
- The United States and emerging Asian markets, including Malaysia, Thailand, Indonesia, South Korea, China, and the Philippines.
- When
- This week; the China-US 10-year yield gap reached a record earlier this month.
- Why
- Higher US yields may attract investment away from Asian bonds, pressure local currencies, and encourage central banks to keep interest rates elevated.
Outflow and Vulnerability Concerns
Asian Market Resilience
Investment flows
Outflow and Vulnerability Concerns
Stephen Chiu said higher US yields could spur foreign outflows or reduce net foreign inflows into emerging Asian bonds.
Asian Market Resilience
Homin Lee said the rise in US yields has also revealed the resilience of Asian dollar and local debt markets, apart from more vulnerable Indonesia and the Philippines.
Market pressure
Outflow and Vulnerability Concerns
Wider yield gaps could pressure local currencies and push regional central banks to maintain high interest rates, increasing borrowing costs and potentially slowing growth.
Asian Market Resilience
Emerging Asian yields have risen more modestly than US Treasury yields, with stable domestic inflation and resilient currencies helping the region avoid a more severe selloff.
Most exposed markets
Outflow and Vulnerability Concerns
Longer-dated bonds in low-yield markets such as South Korea and Thailand are particularly at risk from higher Treasury yields.
Asian Market Resilience
The differing performance across Asia suggests that not all regional markets are facing the same degree of vulnerability; the sources specifically identify Indonesia and the Philippines as more vulnerable.
Key facts
- US 30-year yield
- Reached its highest level since 2004.
- US 10-year yield
- Reached its highest level since 2007.
- Malaysia 10-year spread
- The discount to US Treasuries widened to 125 basis points, the widest since 2007.
- Thailand 10-year spread
- The gap reached 290 basis points, nearing a record low.
- Indonesia spread
- The spread over Treasuries narrowed to 188 basis points, approaching an all-time low.
- Regional yield moves
- Yields rose by as much as 7 basis points in Malaysia and Thailand on Thursday.
- Potential impact
- Capital outflows could pressure currencies, raise borrowing costs, and weigh on economic growth.
Quotes
Stephen Chiu
Chief emerging markets FX strategist at Bloomberg Intelligence
“The relentless uptrend in US yields does provide an uncomfortable backdrop for bond investors. But it also revealed the resilience of USD and local debt markets in Asia, with the exception of more vulnerable Indonesia and Philippines.”
livemint.com
“Longer-dated EM Asia bonds are particularly at risk from higher Treasury yields, especially low-yielders such as South Korea and Thailand”
livemint.com
Sources
Related news
Rising US Yields Threaten India’s Foreign Investment Appeal
US 10-Year Yield Hits 19-Year High, Challenging Indian Markets
Global Bond Sell-Off Pushes Japan Yields To 30-Year High
Rising US Treasury Yields Raise Pressure on Indian Bonds
Treasury Rout Threatens Popular Emerging-Market Carry Trade Strategy
Asian Markets Tumble as US-Iran Fighting Lifts Oil, Yields
Trump-Xi Summit Manages Rivalry but Fails to Resolve Tensions
India Wins Shooting Gold And Silver At Asian Games
Asian Stock Markets Close for September 25 Holidays
India's Manufacturing Mission Enters Next Leap With Innovation
India Pushes for UNSC Permanent Seat Through Global Consensus
