JPMorgan says rising bond yields are ‘healthy signs’ and may benefit Asia

SINGAPORE – A recent spike in bond yields has spooked global markets, but JPMorgan Private Bank says it may reflect “growth optimism” as the global economy rebounds from the coronavirus pandemic.

“If you think of higher bond yield (s) or stronger growth, or even a little more inflation at this point in the cycle – those are healthy signs,” said Julia. Wang, executive director and global market strategist for the company, at CNBC. “Street Signs Asia” Tuesday.

His comments came as some investors worried more about the recent rise in bond yields. For example, the yield on the benchmark 10-year US Treasury bill has risen rapidly to levels not seen since before the worst of the pandemic struck. When yields rise, bond prices fall.

The rise in bond yields comes amid optimism about the global economy and as coronavirus vaccination campaigns in the world’s major economies continue.

“I think the global economy is going through this phase of cyclical recovery and a rise in bond yields (is) very much a reflection … of that growth optimism,” Wang said.

Much of that optimism is expected to “materialize” in Asia this year, which is experiencing a “really strong” growth momentum, the strategist said.

“If you think about where we are at with cyclical growth, the fallout from US fiscal policy will be quite significant for Asian exporters,” Wang said. “We also have commodity exporters here in Asia, they will also feel the positive rally in commodities.”

In terms of fundamentals, the situation appears to have “improved a bit” over the past six months or so, as current account deficits have seen a “generalized shrinkage”, she added. A current account deficit occurs when a country’s imports exceed its exports.

“If you think about what’s driving the slope of the yield curve this time around, I think at this point it’s still not a threat – but over time I think this growth (optimism) is actually a positive wind for Asian markets, ”Wang said.

A yield curve widens when the yield on a longer-term Treasury bill (such as a 30-year bond) rises more than a shorter-dated Treasury note, such as a 5 or 10 year note.

Typically, a steepening curve is seen as a positive sign for the economy, stock markets, and corporate earnings, while a flattened yield curve serves as a warning for upcoming economic weakness.

– CNBC’s Jeff Cox and Yun Li contributed to this report.