Treasury Yield Surge Rattles Emerging-Market Currencies in Asia

The U.S. Treasury building stands in Washington, D.C., U.S., on Thursday, April 16, 2020. President Donald Trump threatened Wednesday to try to force both houses of Congress to adjourn -- an unprecedented move that would likely raise a constitutional challenge -- so that he can make appointments to government jobs without Senate approval.
The U.S. Treasury building stands in Washington, D.C., U.S., on Thursday, April 16, 2020. President Donald Trump threatened Wednesday to try to force both houses of Congress to adjourn -- an unprecedented move that would likely raise a constitutional challenge -- so that he can make appointments to government jobs without Senate approval.

(Bloomberg) -- Rising U.S. Treasury yields made their first mark on emerging Asian currencies on Friday, with the South Korean won and Indonesia’s rupiah bearing the brunt of a stronger dollar.

The won slumped over 1% while the rupiah dropped 0.8% as the greenback strengthened against most developing Asian and Group-of-10 currencies. Treasury 10-year yields climbed to 1.10%, the highest since March.

The surge in the key global benchmark yield could temporarily halt the dollar’s recent three-month slide and undermine a rally in Asia’s risk-sensitive currencies. Regional economies that are reliant on external financing may find their currencies especially vulnerable to any sustained strength in the greenback.

“Higher U.S. yields will likely mean a temporary retracement of Asian currencies,” said Kheng Siang Ng, Asia Pacific head of fixed income at State Street Global Advisors, which oversees $3.15 trillion. “The medium term question is: is this the start of a dollar bull cycle? We generally feel that the dollar should continue to weaken, but it doesn’t mean that this is a straight line.”

The pullback in Asia’s currencies may also reflect a squeeze of dollar-short positions, analysts said. Other than the pegged Hong Kong dollar, all regional currencies rallied in the fourth quarter, with the won gaining almost 8% while the rupiah advanced about 6%.

Emerging currencies elsewhere also suffered losses on Thursday, with the Mexican peso sinking 1.8% while the South African rand dropped 2.4%.