Following the rise in US bond yields in response to Joe Biden’s stimulus package and amid higher inflation in some economies, Asia-Pacific bond yields have also increased significantly, particularly in Asia. Southeast, India, Hong Kong and Australia. However, bond yields in Northeast Asia rose little.
The prospect of stronger growth and higher interest rates in the United States has led to weaker APAC currencies. But like in the United States, APAC stock markets have so far generally ignored the prospect of higher international bond yields (domestic reasons account for weaker stock markets in China and Hong Kong).
As the financial markets began to value stronger economic growth in the United States and inflation due to Joe Biden’s stimulus package, US bond yields rose, causing ripple effects around the world, including in APAC.
While we expect further increases in international bond yields to be modest, if US rates rise more substantially, yields in Southeast Asia, India, Hong Kong and Australia are likely to come under pressure from the market. higher than those of China and Japan, while APAC exchange rates are expected to depreciate further.
The stronger economic growth outlook in the United States is the underlying reason for the market move, so most of the APAC stock markets could continue to perform relatively well. In some Asian emerging markets, markets could be under downward pressure if taper tantrum pressures increase, although better fundamentals should prevent drastic backlash.
Source: Oxford Economics Research Briefing