Asian equities dropped further and bond yields rose after US Treasury yields jumped, as prospects for higher inflation and economic growth increased, making investors doubt that central banks would retain ultra-low interest rates for a longer period.
Overnight, the benchmark 10-year US yield touched its highest in a year at 1.614 percent, causing a sell-off in US equities.
“The bond market is signaling disbelief that the Fed could continue keeping rates at such low levels in the face of a recovering economy and rising commodity costs,” analysts at OCBC wrote in a note.
They warned that further turmoil in equity markets was expected if bond yields continued rising as investors looked to rebalance their portfolios.
Rising bond yields threaten the allure of stocks’ dividend yield, while companies also face a higher debt-servicing burden because of steeper borrowing costs, making investing in the relatively riskier stocks less attractive overall.
India’s 10-year bond yield climbed 6 basis points to its highest since early May last year at 6.242 percent, while Malaysian yields surged to 3.054 percent, hitting their highest since July 1, 2020.
Indonesian bonds also succumbed, with yields spiking almost 8 basis points to 6.617 percent. Yields had initially held steady after the country’s finance minister said on Wednesday 2021 financing plans might be scaled back.
Equity markets in South Korea and Taiwan, whose technology stocks have come under added pressure amid the spike in global bond yields due to fears they may be overvalued, bore the brunt of the sell-off, falling 3.3 percent and 2.9 percent, respectively.