People watch on a screen a live television channel from Indian Finance Minister Nirmala Sitharaman who will present the 2020 Union budget on February 1, 2020 at the Bombay Stock Market (BSE) in Mumbai.
Punit Paranjpe | AFP | Getty Images
SINGAPORE – According to a report by S&P Global Ratings, rising US bond yields will not hurt emerging Asia as much as it did eight years ago during the “Taper Tantrum”.
“Taper Tantrum” describes the rise in US Treasury bond yields in 2013 after the Federal Reserve announced it would end its quantitative easing or asset purchase program.
The move resulted in heavy cash outflows from emerging markets, including those in Asia, and forced their central banks to raise interest rates to protect their capital accounts.
“Not all earnings shocks are created equal,” said Shaun Roache, S & P’s chief economist in the Asia-Pacific region, in a press release on Wednesday.
The recovery in emerging Asia should withstand rising US yields as long as it reflects an improvement in growth prospects and reflation rather than a monetary shock.
Shaun Roache
Asia Pacific Chief Economist, S&P Global Ratings
US Treasury bond yields have been rising for weeks, and the benchmark 10-year Treasury bill hit a high of 1.689% on Wednesday, its highest level since January 2020. It has since declined after Federal Reserve Chairman Jerome Powell , stated that the central bank did not have any plans to raise interest rates.
Roache said US yields are rising in the hope that better economic growth will boost inflation. And Asia is usually a “main beneficiary” of improving global growth, he said.
In addition, the current economic conditions in Asia allow the region to better protect itself from external shocks compared to 2013, S&P said. These conditions include current account surpluses, generally low inflation, higher real interest rates and higher foreign exchange reserve buffers, according to the rating agency.
In many Asian countries, it has been relatively successful in containing the spread of Covid-19. This enabled the region’s economies to recover faster than those in Europe or the United States
“The recovery in emerging Asia should withstand rising US yields as long as it reflects an improvement in growth prospects and reflation rather than a monetary shock,” said Roache.
Nevertheless, risks remain. The economist said that Asia’s recovery could be threatened if markets view the Fed as an underestimated risk of inflation, causing US yields to rise very quickly while the US dollar appreciates.
In such circumstances, India and the Philippines will be the most vulnerable, S&P said
Inflation has risen in both economies in recent months and their real policy rates are below long-term averages, the agency said. This means the funds may pull out of the two markets faster and their central banks may have to raise interest rates in response, he added.
However, a mitigating factor for the two countries is that their current accounts are now stronger, S&P said
