SINGAPORE — A latest spike in bond yields spooked international markets, however JPMorgan Non-public Financial institution says it could be a mirrored image of “development optimism” as the worldwide financial system bounces again from the coronavirus pandemic.
“If you consider rising bond yield(s) or stronger development, or perhaps a little bit extra inflation at this level within the cycle — these are wholesome indicators,” Julia Wang, government director and international market strategist on the agency, advised CNBC’s “Road Indicators Asia” on Tuesday.
Her feedback got here as some buyers develop extra involved in regards to the latest rise in bond yields. For instance, the yield on the benchmark 10-year U.S. Treasury be aware noticed a fast rise to ranges not seen since earlier than the worst of the pandemic struck. When yields rise, bond costs fall.
The rise in bond yields comes amid optimism over the worldwide financial system, and as coronavirus vaccination campaigns in main economies worldwide proceed.
“I believe that the worldwide financial system goes by way of this cyclical restoration part and a rising bond yield (is) very a lot a mirrored image … of this development optimism,” Wang stated.
A lot of this optimism is anticipated to be “realized” in Asia this yr, which is seeing a “actually sturdy” development impulse, the strategist stated.
“If you consider the place we’re with cyclical development, the spillover from U.S. fiscal coverage can be fairly significant for Asian exporters,” Wang stated. “We even have some commodity exporters right here in Asia, they will additionally really feel the optimistic carry of the commodity choose up.”
When it comes to fundamentals, the scenario appears to have gotten “a bit higher” during the last six months or in order present account deficits have seen a “narrowing throughout the board,” she added. A present account deficit happens when a rustic’s imports exceed its exports.
“If you consider what is the underlying driver of the yield curve steepening this time round, I believe that at this time limit it is nonetheless not a menace — however over time I believe this development (optimism) is definitely a tailwind for Asia markets,” Wang stated.
A steepening yield curve happens when the yield of a longer-dated Treasury be aware (corresponding to a 30-year bond) rises greater than a shorter-dated Treasury be aware, like a 5- or 10-year be aware.
Sometimes, a steepening curve is seen as a optimistic signal for the financial system, inventory markets and company earnings, whereas a flattening yield curve serves as a warning for financial weak spot forward.
— CNBC’s Jeff Cox and Yun Li contributed to this report.