US Treasury yield surge threatens higher mortgage costs for Asia, including Singapore

The yield on the 30-year US Treasury bond hit a near-20-year high above 5.33% on 18 Aug, prompting US intervention. Analysts warn that higher US yields will push up borrowing costs in Asia, making mortgages and loans more expensive for households and businesses.

The yield on the 30-year US Treasury bond rose above 5.33 per cent on 18 Aug, its highest level since 2007, prompting US Treasury Secretary Scott Bessent to double the size of planned buybacks of longer-term Treasuries. While the announcement temporarily lowered yields, the relief proved short-lived, with longer-term yields subsequently rebounding.

Higher US yields typically push up Asian bond yields and borrowing costs, said Mr Chen Jiesheng, interest rate strategist at UOB. This could lead to more expensive mortgages and other loans for households and businesses while potentially dampening investment activity as financing costs rise, he added.

Analysts point to a combination of factors behind the surge in long-term Treasury yields: immediate inflation concerns from the war with Iran pushing oil prices higher, and longer-running worries about the US government’s substantial fiscal deficits. “Recurrent worries about the US’ fiscal position” are at play, said Mr Eugene Leow, senior rates strategist at DBS Group Research, adding that a surge in corporate borrowing for AI-related investments has increased competition for investor capital.

Ms Magdalene Teo, head of fixed income research for Asia at private bank Julius Baer, said central banks will be closely watching the yield rise, particularly if inflation persists and leads to second-order effects that could prompt rate hikes. “Such higher base rates would in turn push up mortgage rates,” she noted. Elevated interest rates could also weigh on rate-sensitive income assets such as real estate investment trusts (REITs) and bonds.

For Asian households, the challenge is compounded by higher import prices, especially when higher yields are accompanied by weaker currencies, Ms Teo said. However, Mr Chen noted that the region is relatively well placed to withstand such pressures, citing strong savings rates and adequate foreign exchange reserves in most Asian economies.

DBS’ Mr Leow said that higher yields in developed markets mean Asian assets face more competition for investor capital. “The differentiation will depend on what each economy offers. These could include things like political stability, exposure to AI, commodities, fiscal prudence,” he said, adding that structural forces like large fiscal deficits mean yields are likely to stay elevated for some time.