NEW YORK (Reuters) - If U.S. Treasury yields keep rising, investors may decide that the premium offered by some emerging market currencies is just not worth the risk of holding them, Mike Moran, foreign exchange strategist with Standard Chartered, said on Wednesday.
The benchmark 10-year U.S. Treasury note yield rose to a five-year high of 5.33 percent on Wednesday, only 17 basis points away from where investors might get nervous about keeping currencies such as the Mexican peso or South African rand in their portfolios.
"Clearly, if U.S. yields move up to 5.50 to 5.75 percent levels, stress will be applied to these emerging markets," Moran said at the Reuters Investment Outlook Summit.
"Once that happens it will be key to categorize these emerging market high yielders into their respective segments," he said.
The Turkish lira and the Brazilian real would be more insulated from a further rise in U.S. yields because of their high interest rates.
But emerging market currencies with yields below Brazil's and Turkey's, such as the Mexican peso, South African rand, Indonesian rupiah and Philippine peso, could feel the pinch of rising global bond yields.
Moran said another risk for these currencies is from high-yielding G10 currencies such as the Australian and New Zealand dollars, with benchmark interest rates of 6.25 percent and 8 percent, respectively.
New Zealand, in particular, offers rates higher than the Philippines and only 50 basis points below Indonesia's.
The recent spike in Treasury yields has sparked a sell-off in what are seen as risky assets, erasing all emerging debt gains so far this year.
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