What does US bond ‘taper tantrum’ mean for China’s financial markets?
- Sharp sell-off in the US Treasury bond market this week triggered declines in financial markets around the world
- But China’s government bond market, in particular, has shown it is relatively resilient to the rise in US Treasury yields
A sharp sell-off in the US Treasury bond market on Thursday – triggered by worries of higher US growth, inflation and interest rates – caused declines in financial markets around the world and evoked memories of US Federal Reserve policy moves in 2013 that resulted in a reactionary panic nicknamed the “taper tantrum”.
The 10-year US Treasury yield jumped as high as 1.6085 per cent on Thursday, returning to a level last seen before the coronavirus outbreak in the United States. The resulting sharp decline in US stock markets, and a rebound in the US dollar, heaped pressure on Asian equities and currencies on Friday.
Back in 2013, the Federal Reserve’s decision to begin scaling back, or “tapering”, its programme of buying bonds from the market to inject additional liquidity – quantitative easing – sparked an investor flight from emerging markets on fears that their markets would collapse. The financial downturn turned out to be only temporary, but investors coined the phrase “taper tantrum” to describe the sharp market reaction to the Fed’s move.
Analysts say Asia’s emerging markets have taken various measures to improve the stability of their economies, such as opening up markets and increasing their foreign exchange reserve holdings, so they are in a much better position this time around to withstand any sudden shifts in capital flows.
In 2013, five emerging Asia economies – including Thailand, Indonesia and India – all had large current account deficits, making them vulnerable to shifts in capital flows. The only Asian emerging market countries with deficits now are Pakistan and Sri Lanka, according to Gareth Leather, senior Asia economist at Capital Economics.