The unexpected rise in US Treasury yields in Q1 2021 gave global markets some heartburn. In the ASEAN+3 region, interest rates rose in tandem, raising concerns about the economic recovery. Another main worry is that rising US interest rates could negatively affect capital flows into the region. However, past experience suggests that a rise in US interest rates per se does not necessarily result in an undesirable outcome for the region.

This note parses the US interest rate-related factors that typically impact regional asset prices and capital flows—nominal yields, real yields, and inflation expectations—to assess when the region’s policymakers should be concerned.