US Treasury Yields Hit 20-Year High, Pushing Up Asia's Borrowing Costs
US 30-year Treasury bond yields hit a near 20-year high last week. This rise pushes up Asian bond yields, increasing borrowing costs for regional households and businesses. The US Treasury doubled bond buybacks to support market liquidity.
US Yields Reach Near Two-Decade High
The 30-year US Treasury bond yield climbed above 5.33 per cent on 18 August, marking its highest level since 2007. This surge prompted action from Washington. US Treasury Secretary Scott Bessent announced plans to double longer-term Treasury buybacks. These purchases aim to support market liquidity. Buybacks typically increase bond demand, pushing prices higher and yields lower.
Yields initially fell sharply after Bessent's announcement. However, this relief proved temporary, with longer-term yields quickly rebounding.
Inflation, Debt Concerns Drive Yields
Several factors contribute to the rising long-term Treasury yields. Immediate inflation concerns and worries about the US government's debt absorption capacity are key drivers. The recent war with Iran accelerated this trend, pushing oil prices higher. This fuels inflation fears, which can keep interest rates elevated. Investors then expect higher yields on longer-term debt.
Additionally, Washington's large fiscal deficits demand substantial debt issuance, as noted by Eugene Leow, senior rates strategist at DBS Group Research. A growing supply of debt requires willing buyers. Insufficient demand at current prices means bond prices fall and yields rise.
Global Pressures and Asian Impact
Competition for investor capital also increased due to a surge in corporate borrowing for AI-related investments, Mr Leow added. This pressure is not unique to the US; government bond yields have risen in other major economies, including Japan and Germany.
Concerns over the US-Japan intervention to support the weak yen also contribute, said Barnabas Gan, group chief economist at RHB Bank. Japan, a significant holder of US Treasuries, might sell these bonds to prop up its currency. Mr Gan, however, anticipates global bond yields approaching a cyclical peak. Moderating inflation risks and stable oil prices could help stabilise them.
Asia Faces Higher Financing Costs
Higher US yields typically increase Asian bond yields and overall borrowing costs, according to Chen Jiesheng, interest rate strategist at UOB. This translates into more expensive mortgages and other loans for regional households and businesses. Rising financing costs could dampen investment activity across Asia.
Asian households already face challenges from higher import prices. This impact worsens when higher yields coincide with weaker local currencies, observed Magdalene Teo, head of fixed income research for Asia at Julius Baer. Businesses should prepare for sustained elevated capital costs.
This article is journalism, not investment advice; consult a licensed professional before making financial decisions. Market data is indicative, may be delayed, and should be verified with your broker or exchange before use.
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