What do rising US Treasury yields mean for Singapore investors?
The increase reflects concerns for issues such as the US fiscal outlook and heavy debt issuance
Add BT as a preferred source
[SINGAPORE] Local investors are watching the impact of higher US Treasury yields on domestic bonds and equities, after a month of upward pressure on longer-dated yields culminated in a hawkish message from Federal Reserve chair Kevin Warsh at the Jackson Hole symposium on Aug 28.
Warsh flagged concerns over persistent inflation, suggesting that monetary policy may need to remain restrictive – or tighten further – if price pressures fail to ease.
His comments added to upward pressure on long-dated US yields, which had already been climbing through August, prompting buybacks to support liquidity. The 10-year Treasury yield subsequently rose to 4.8 per cent on Sep 1, its highest level since January 2025. Government yields across major markets such as Japan and the UK also reached new highs that day.
The latest moves come against a backdrop of broader pressures on US yields, ranging from concerns over the US fiscal outlook and heavy debt issuance, to growing capital needs from the artificial intelligence investment boom. More recently, renewed Middle East tensions have added to inflation concerns, pushing yields higher still.
Nicky Shiels, MKS Pamp head of research and metals strategy, attributed the past month’s upward pressure on yields to AI-related issuance competing for capital and US fiscal dynamics, even as consumer inflation expectations stay subdued.
For investors here, the implications may not be straightforward. For instance, higher US yields can exert upward pressure on Singapore bond yields and borrowing costs, but factors such as domestic liquidity could cushion the impact.
Meanwhile in equities, the effects can also diverge across sectors: higher yields tend to weigh on rate-sensitive sectors such as real estate investment trusts (Reits), while potentially supporting bank margins.
The Business Times asked analysts what higher US yields could mean for Singapore investors across bonds, Reits, banks and gold.
Impact on Singapore rates and bonds
Analysts differ on how closely Singapore bond yields track their US counterparts, particularly across different maturities and time horizons.
SEE ALSO
Paras Gupta, head of investment services for South-east Asia and head of discretionary portfolio management for Asia at Union Bancaire Privee (UBP), noted that while higher US yields pull Singdollar bond yields up, the pass-through is partial and delayed.
“Day to day, there is very little relationship as domestic liquidity and Singapore’s ‘AAA’ status tend to dominate the short-term price action,” said Gupta, noting that it is only over longer horizons that Singapore Government Securities (SGS) yields follow the US.
Winson Phoon, regional head of fixed income research at Maybank investment, agreed that SGS remained moderately correlated with US treasuries, and the impact of high US treasury yields is cushioned by ample domestic liquidity and low interbank rates.
“Unlike the US Treasury, Singapore does not issue debt to fund fiscal deficits and has flexibility to adjust bond supply subject to market conditions,” he said.
But not everyone agrees the relationship is loose. Ng Kheng Siang, Asia-Pacific head of fixed income at State Street Investment Management, said that intermediate to long-dated Singdollar bond yields maintain a high correlation with US dollar bond yields.
The pressure on rates is also filtering through to corporate funding costs. Louis Lu, investment manager for Asian equities at Aberdeen Investments, said sustained high yields will keep borrowing costs elevated for domestic corporate issuers.
He added that lower-rated borrowers could be more selective about tapping the market while stronger issuers could favour shorter-dated debt and wait for attractive issuance windows.
Impact on Reits
Singapore Reit (S-Reit) valuations are often benchmarked against “risk-free” government bonds, with a narrowing yield spread making S-Reits less attractive to investors.
Analysts noted that with 10-year SGS yields ranging between 2.3 and 3 per cent – compared with S-Reit distribution yields of 5 to 7 per cent – this represents a tighter gap than historical averages.
Kieran Calder, head of equity research Asia at UBP, said that S-Reits are unlikely to see a sustained valuation re-rating unless rates decline.
Thilan Wickramasinghe, head of research Singapore and head of regional financials, Maybank Securities, also sees some near-term headwinds, where higher long-term yields increase the discount rates used in Reit valuations.
However, he noted that as S-Reits already trade at significant discounts to historical levels, further downside may be moderate in this cycle, supported by growing distribution per unit, resilient operating metrics and lower financing costs seen in the latest results.
“With Singapore’s strong domestic growth environment, we think the sector still offers medium-term compounding returns for investors who remain invested,” he said.
Aberdeen’s Lu recommended selectivity for S-Reits over the next six to 12 months, favouring S-Reits with lower Singapore-only asset concentration, exposure to high-growth overseas markets, robust balance sheets, and active asset recycling pipelines.
Impact on banks
As for Singapore’s banks, which have driven much of the Straits Times Index’s strength in recent years, analysts believe elevated interest rates will provide structural tailwinds, although the relationship between high yields and bank profitability is not always linear.
Maybank Securities’ Wickramasinghe added that higher-for-longer yield environments are not necessarily negative for the banks.
“Net interest margins could become more resilient than expectations, and persistently elevated rates could help maintain healthy net interest income support,” he said.
While there may be some pockets of headwinds for credit demand… overall momentum for loan growth is likely to be positive,” said Wickramasinghe, due to the size of the domestic construction boom in Singapore and ongoing regional investments in the AI theme.
Aberdeen’s Lu agreed that Singapore banks will benefit from elevated margins as long as loan repricing outpaces increases in deposit funding costs.
However, UBP’s Calder warned of key risks on bank equities: a sharper-than-expected economic slowdown impacting wealth management fees, potential asset-quality deterioration, or global safe-haven flows into Singapore slowing down.
Gold as a safe haven?
While higher real yields would traditionally be a headwind for non-yielding bullion, analysts said it is different this time as fiscal and geopolitical concerns have weakened that relationship.
MKS Pamp’s Shiels noted that gold rallies under these three conditions, which are present today:
- When the Fed appears to be losing control of the long end;
- Higher fiscal dominance risks; and
- A questioned confidence in the institutional framework underpinning US dollar.
Maybank Securities’ Wickramasinghe concurred that this current macro backdrop “breaks traditional rules”, referring to the typical inverse correlation between rates and gold prices.
Uday Vikram, co-chief investment officer, Klay Group said: “For now, yields simply have not mattered much for gold but I would caution that this won’t last indefinitely: At some point, if real yields climb high enough, they will reassert themselves as a genuine headwind.”
“We are not at that level yet, and until we get there, the structural story dominates when the risk-free asset is being managed, it is no longer truly risk-free, and gold quietly takes over the ballast role that government bonds used to play,” said Vikram.
What happens next?
Investors will be watching upcoming US economic data for clues on where the Fed stands and what it means for policy.
James Ooi, market strategist at Tiger Brokers, said that Warsh’s emphasis on timely data suggests the Fed is likely to remain responsive to incoming economic signals, putting August nonfarm payrolls, consumer price index and producer price index firmly in focus ahead of the Federal Open Market Committee meeting on Sep 15-16.
“With recent payroll growth disappointing and Warsh’s five task forces still developing their recommendations, the bar for an immediate rate hike may remain relatively high,” he added.
Meanwhile, Abhilash Narayan, director, investment strategist, HSBC Private Bank and Premier Wealth, said that their base case remains for the Fed to stay on hold for the rest of 2026 despite the somewhat hawkish tone from Fed chair Warsh at Jackson Hole.
“We believe longer-end maturity bond yields look increasingly attractive, especially when viewed through the lens of real yields,” said Narayan, adding that the team prefers a five to seven year maturity profile and remains overweight gold as a portfolio diversifier and hedge.
Klay’s Vikram noted that much of the hawkishness from Jackson Hole was priced in, so the rate-driven downside for gold from here looks fairly limited.
“Near term, though, I would expect both gold and long-end rates to stay largely rangebound, (with) yields capped by the Treasury’s willingness to step in and floored by the lack of slowdown priced in, and gold consolidating after the hawkish repricing,” he added.
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
Copyright SPH Media. All rights reserved.
