Treasury yields hit new decade highs in Asia on Tuesday as traders grew wary of how long interest rates might need to stay elevated, with the higher risk-free rate putting a dampener on stocks even as beaten-down Chinese markets attempted a rebound.
Benchmark 10-year U.S. Treasury yields rose about 2.5 basis points (bps) in early Tokyo trade to 4.366%, extending an overnight rise to hit their highest since 2007.
Yields go up when bond prices go down. U.S. Ten-year yields are up almost 40 bps for the month so far. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.4%, led by volatile gains in China.
Japan’s Nikkei (.N225) rose 0.5%, helped by an overnight drop in the yen, which can be a boon for exporters’ profits, and a positive lead from Wall Street where the S&P 500 rose 0.7%.
S&P 500 futures fell about 0.2% in early trade.
The selloff in bond markets is catching investors’ eyes since it has no obvious trigger and has not come with major shifts in inflation expectations, meaning that “real” yields, which discount inflation expectations, have surged.
“That being the case, it is not outlandish to expect significant impact on credit and capital flows,” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore, since it ought to prompt investors to revaluate taking risks.
A near 300 bps added to 10-year U.S. real yields since September 2021 is the most acute tightening of real rates in 25 years, he said, with a speech on Friday by Federal Reserve Chair Jerome Powell capable of driving them higher still.