US Treasury yield surge pushes Asia bond spreads toward record levels

September 25, 2026 at 05:29 AM3 min

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The surge in US Treasury yields has pushed yield gaps with emerging Asia bonds toward record levels, raising the risk of capital outflows from the region. The 30-year Treasury yield hit its highest since 2004 and the 10-year its highest since 2007, while Malaysia's 10-year discount to Treasuries widened to 125 basis points, the most since 2007. Regional central banks may keep domestic rates elevated to defend currencies, potentially weighing on growth.

Key Facts

The 30-year US Treasury yield surged to its highest level since 2004 on Thursday, while the benchmark 10-year yield hit its highest since 2007.
Malaysia's 10-year bond discount to Treasuries widened to 125 basis points, the most since 2007, and Thailand's reached 290 basis points, nearing a record low.
The China-US 10-year yield gap widened to the most on record earlier this month, while Indonesia's spread over Treasuries narrowed to 188 basis points, approaching an all-time low.
Stephen Chiu, chief emerging markets FX strategist at Bloomberg Intelligence, said longer-dated EM Asia bonds are particularly at risk, especially low-yielders such as South Korea and Thailand.
Homin Lee, senior macro strategist at Lombard Odier Singapore, said the relentless uptrend in US yields provides an uncomfortable backdrop but revealed the resilience of USD and local debt markets in Asia, except for more vulnerable Indonesia and Philippines.

US Treasury Selloff

A selloff in US government bonds deepened this week, with the 30-year yield surging to its highest level since 2004 on Thursday and the benchmark 10-year yield hitting its highest since 2007. The surge in Treasury yields has pushed yield gaps with emerging Asia bonds toward record levels, raising the risk of capital outflows from the region, according to strategists. US yields' rise could either spur foreign outflows or reduce net foreign inflows into the region's bonds.

Asia Bond Spreads

Malaysia's 10-year yield discount to Treasuries widened to 125 basis points, the most since 2007, while a similar gap for Thai 10-year bonds reached 290 basis points, nearing a record low. The China-US 10-year yield gap also widened to the most on record earlier this month, while Indonesia's spread over Treasuries narrowed to 188 basis points, approaching an all-time low. Yield moves in emerging Asia have been more modest, rising by only as much as 7 basis points in Malaysia and Thailand on Thursday. The region has so far avoided the more severe selloff seen in US Treasuries, thanks to stable domestic inflation and resilient currencies.

Central Bank Response

For emerging Asia, the widening yield gap and potential capital outflows may result in a myriad of consequences, including putting downward pressure on local currencies. Regional central banks may then be driven to keep domestic interest rates elevated to defend currencies, which could boost borrowing costs and potentially weigh on economic growth. Stephen Chiu, chief emerging markets FX strategist at Bloomberg Intelligence, said longer-dated EM Asia bonds are particularly at risk from higher Treasury yields, especially low-yielders such as South Korea and Thailand. Homin Lee, senior macro strategist at Lombard Odier Singapore, said the relentless uptrend in US yields provides an uncomfortable backdrop for bond investors but also revealed the resilience of USD and local debt markets in Asia, with the exception of more vulnerable Indonesia and Philippines.