SINGAPORE — A recent spike in bond yields spooked global markets, but JPMorgan Private Bank says it may be a reflection of “growth optimism” as the global economy bounces back from the coronavirus pandemic.
“If you think about rising bond yield(s) or stronger growth, or even a little bit more inflation at this point in the cycle — these are healthy signs,” Julia Wang, executive director and global market strategist at the firm, told CNBC’s “Street Signs Asia” on Tuesday.
Her comments came as some investors grow more concerned about the recent rise in bond yields. For example, the yield on the benchmark 10-year U.S. Treasury note saw a rapid rise 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 over the global economy, and as coronavirus vaccination campaigns in major economies worldwide continue.
“I think that the global economy is going through this cyclical recovery phase and a rising bond yield (is) very much a reflection … of this growth optimism,” Wang said.
Much of this optimism is expected to be “realized” in Asia this year, which is seeing a “really strong” growth impulse, the strategist said.
“If you think about where we are with cyclical growth, the spillover from U.S. fiscal policy will be quite meaningful for Asian exporters,” Wang said. “We also have some commodity exporters here in Asia, they’ll also feel the positive lift of the commodity pick up.”
In terms of fundamentals, the situation seems to have gotten “a little better” over the last six months or so as current account deficits have seen a “narrowing across the board,” she added. A current account deficit occurs when a country’s imports exceed its exports.
“If you think about what’s the underlying driver of the yield curve steepening this time around, I think that at this point in time it’s still not a threat — but over time I think this growth (optimism) is actually a tailwind for Asia markets,” Wang said.
A steepening yield curve occurs when the yield of a longer-dated Treasury note (such as a 30-year bond) rises more than a shorter-dated Treasury note, like 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 flattening yield curve serves as a warning for economic weakness ahead.
— CNBC’s Jeff Cox and Yun Li contributed to this report.