Opinion | Rising US Treasury yields a clear and present danger to Asia’s emerging economies
A spike in US debt yields is contributing to chaos from India to Indonesia to the Philippines, where currencies are cratering
With stocks from New York to Tokyo going gangbusters, it’s hard to get excited about bond markets. In recent years, betting against government IOUs has become a “widow-maker” trade.
Not so anymore, given last week’s burst of chaos in the US Treasury market. On October 3, 10-year yields jumped 11 basis points to 3.16 per cent, the highest since 2011. More than the magnitude, the worry for Asia is why the 15-year downward march in long-term rates may be over.
Traders predictably grasped for explanations. News that Amazon’s Jeff Bezos increased minimum hourly wages to US$15 seemed as good as any – a reminder that drum-tight labour markets could fan inflation. Others pointed to the Federal Reserve’s tightening cycle.
What’s really going on: the bond vigilantes are circling.
The reference here is to the mercurial cast of characters who protest fiscal or central bank policies they deem dangerous. The latter connection is a non-starter. Given tame US inflation rates and latent trauma from the “Lehman shock” 10 years ago, it’s hard to argue Jerome Powell’s Fed is behind the curve.
No, the real force threatening bondland is Donald Trump’s fiscal irresponsibility. Ten months ago, the US president’s Republican Party passed a US$1.5 trillion tax cut an already robust economy did not need. More recently, traders stewed over spending increases that will push Washington’s budget deficit to the US$1 trillion mark, a near-unthinkable trajectory.
