Intro
Fred Neumann and Herald van der Linde record from Hong Kong on what August's swings in the US Treasury market mean for Asia, working through funding costs, mortgage rates, exports, the currency response and Asian central banks. Van der Linde takes the equity side, running a tug-of-war framework over Korean earnings forecasts and the roughly trillion dollars of data center building, and Neumann sets the whole thing against the 1997-98 crisis both men lived through.
Hosts: Fred Neumann and Herald van der Linde, HSBC Global Investment Research
Published: 28 August 2026 on Under the Banyan Tree (HSBC Global Viewpoint)
Episode page | 14 min
Key Takeaways
Asia's position has flipped since the crisis years: it lends to the world rather than borrowing from it
"Today, most Asian economies are actually lending money to the rest of the world. They have excess savings to lend to the rest of the world." — Fred Neumann
Some are still net borrowers, and Indonesia is the one the pair named
Higher US yields reach Asia through the American shopper, not just through Asian balance sheets
Neumann: higher mortgage rates leave US consumers less to spend, and they buy fewer Asian-made goods
Borrowed money funds the AI build-out, so the cost of credit is now an Asian export question
"we might also sell fewer chips and servers into the U.S. AI boom" — Fred Neumann
Rising US rates are not automatically dollar-positive when they are rising on fiscal risk
Local investors, not foreigners, are now the biggest buyers in India, Thailand and Korea
"We have a much sort of better buffer, if you want to put it like that, to play with." — Herald van der Linde
Equities are a tug of war between earnings growth and bond yields, and earnings are winning in Asia
Korean earnings growth was forecast at 50% at the start of the year, against a normal 10% to 15%
Asia sits on the paid side of the AI trade if the build-out slows
The chipmakers already have the cash and are starting to pay it out in dividends
What a Treasury Is, and Why August Was So Volatile
Van der Linde opened with the basics for anyone who does not follow the market: "a US Treasury is a bond issued by the US government. So when you buy one, you're essentially lending money to the US government."
The government pays the money back with interest, on maturities running from under a year out to 30 years
He gave two forces pushing yields up in August and one pushing them down
Up: fiscal concerns, with the question of whether Washington has to keep borrowing more to pay for its borrowings, plus inflation and higher oil prices
Down: the announcement that the government would double the amount of Treasury bonds it buys back from investors
On the size of the operations: "at least $4 billion dollars for each of these buyback operations" — Herald van der Linde
The reason for the buybacks was the cost of borrowing at the longest maturities: "long-term yields had reached levels not seen for nearly 25 years, making it much more expensive to borrow money over longer periods" — Herald van der Linde
Why US Yields Set the Funding Cost for Asian Borrowers
"the US Treasury market sets essentially the funding costs for the rest of the world. It is by far the biggest financial market on the planet." — Fred Neumann
When US yields rise, the funding cost rises not only for the American government and American companies but for Asian consumers, companies and governments borrowing globally
Van der Linde pushed the point into everyday prices: it goes into mortgage rates and into everything
The second channel runs through the American shopper. Neumann: "higher mortgage rates mean that U.S. consumers have less money left to spend on everyday items", and they buy fewer goods made in Asia
"there is a direct impact then that higher Treasury yields could actually slow down Asia's exports to the U.S." — Fred Neumann
Van der Linde's running joke through the segment was how many transmission channels there are — "So many angles" — which Neumann adopted
The AI Angle: Borrowed Money Pays for the Build-Out
"because a lot of the AI investment is funded by borrowing, if the cost of borrowing goes up, could this slow down the investment?" — Fred Neumann, framing it as a question rather than a call
If it does, Asia loses twice: "we might also sell fewer chips and servers into the U.S. AI boom"
Neumann said that combination of economic and financial channels is why investors and central bankers spent the past week watching US screens
Why Higher US Rates Might Not Lift the Dollar
Van der Linde raised currencies as the next angle: "If the bond yields go high in the US, people buy the dollar because you get a higher yield there if you extend that, right?", and pointed to moves in the yen
Neumann's answer was that the textbook version only holds if you ignore why rates are rising
The school and university version is that higher US rates should be positive for the dollar
But if "interest rates in the U.S. are going up because of greater risk associated with lending to the U.S. government", that is not necessarily good for the currency
Van der Linde tied it back to the fiscal problem he had raised earlier, that the US borrows so much it has to borrow to finance its borrowings
"that's why the FX implications aren't quite clear. We have to see and we defer to our FX strategists" — Fred Neumann
The consequence for policymakers is volatility rather than direction: "if the US Treasury market is volatile and that's the biggest financial market in the world, then everything else will be quite volatile, including FX and local rates"
1997 Is the Comparison Everyone Reaches For
Van der Linde set up the history with what the two of them have in common: a taste for financial and economic history, and "in the 1990s, we were both in Asia as poor backpackers. You in Thailand, me in Indonesia."
He noted that sharply rising bond yields have disrupted markets before, citing 2008 in the US, where the crack was about mortgages, and 1997-98 in Asia
"The Asian financial crisis in '97, '98 was really an almost traumatic experience for anybody who lived through that. It was so disruptive economically." — Fred Neumann
Van der Linde's own crisis story was personal: "I lost my salary 95% of US dollar terms. I was paid in Indonesian rupiahs. So I was completely wiped out."
Asked whether he had recouped any of it, he said he is still working on it, which Neumann offered as the explanation for why he is still working
The trauma is why the question comes back every time the US bond market wobbles. Neumann: "very quickly then the Asian investor mind wanders to that big event in '97"
He said investors had asked him in the last few days whether it could happen again
Asia Lends to the World Now, With Indonesia the Exception
"What was interesting in the 1990s was that most economies in Asia were borrowing money globally to finance themselves." — Fred Neumann
"Today, most Asian economies are actually lending money to the rest of the world. They have excess savings to lend to the rest of the world."
The arithmetic reverses with the position: "if you borrow money and interest rates go up, you get an economic problem. If you're lending money and interest rates go up, you're actually making money."
Neumann was careful not to call it all good news, saying only that the dynamics are very different
Some Asian economies are still borrowing on a net basis internationally, and Indonesia is one of them
Van der Linde, who lost his salary there: "it's a country that needs foreign capital to grow, and they have to pay for that"
Neumann agreed that for a net borrower "that's a bit of a risk to growth", and set it against Korea, which lends to the rest of the world
Locals Have Replaced Foreign Money in Asian Equity Markets
Van der Linde said the equity market shows the mirror image of the same shift: "20 years ago, the foreign investor was the investor in Asian markets."
When yields rose, that money sold everything and went to the US for the yield, which hit Asian markets hard
"But now it is the locals that really are the biggest players in these markets in India, not in Indonesia so much, but in India and Thailand and in a place like Korea as well."
"We have a much sort of better buffer, if you want to put it like that, to play with." — Herald van der Linde
Neumann's summary of the whole comparison: "We're in a completely different situation."
The Tug of War Between Earnings Growth and Bond Yields
Neumann put the equity question to his co-host directly: "And I guess higher bond yields is generally a headwind for equities."
"So it is a headwind for equities, but that doesn't mean that equities have to go down." — Herald van der Linde
His framework is a tug of war: "The way to think about equities is like a tug of war of two parties."
"these two parties is basically earnings growth and bond yields. If bond yields go up, they pull the market down." Rising earnings pull it the other way
"we now are in a situation where we have unprecedented growth in emerging markets in general, in Asia in particular." — Herald van der Linde, clarifying at Neumann's prompt that he meant earnings growth at listed companies, which can differ sharply from what happens in the economies themselves
Korea is his example, and the forecast has moved a long way in eight months
"At the beginning of this year, the earnings growth in Korea was expected to be 50%, which is already very high. Normally, we grow 10% to maybe 15%."
On where the same calendar-year forecast now sits: "Now, for the same calendar year, 2026, the forecast says we're growing 320%." — Herald van der Linde, who added "I've never seen this, yeah" after Neumann's "Wow, that's huge."
Why Asia Still Gets Paid If the Data Center Build Slows
Neumann asked how much of the earnings picture is contingent on AI, and whether rates could rise enough that "companies can no longer afford to invest in data centers, et cetera, that actually that then feeds into earnings as well"
Van der Linde's answer was yes and a little bit of no, which Neumann said qualified him to be an economist, on the one hand and on the other hand
The yes: higher yields make the build-out more expensive. "if bond yields go up, the financing of these data centers, and we know that's about a trillion dollars around the world, becomes more expensive and people might scale it down."
The no has two parts, and both favor Asia
The chipmakers get paid up front while the data centers are still hoping that customers pay for their products and apps: "they get an enormous amount of cash already coming in and they're starting to pay that out in dividends"
Demand is running ahead of supply anyway: "the demand for that chips is so big that even if there's a scaling down of the investment plans by these data centers, actually demand for these chips still remains pretty good"
"for the first time in a long time, actually, Asia is in a sort of a sweet spot here" — Herald van der Linde, saying the region is in the right corner if there is a slowdown
The Optimist and the Pessimist
Neumann credited his co-host with the balance in the show: "you bring a dose of optimism into this gloomy economics analysis that I usually provide"
Van der Linde half-remembered a book about optimism, whose title he thought was The Power of the Optimism or something, and said he should write it himself
Its argument, as he described it, was drawn from the US market over the last 100 years: "just not doing anything at all actually was the best sort of investment strategy"
"The question though is what happens over the next 100 years, Herald? And that's a much tougher question to..." — Fred Neumann
Van der Linde's reply was to stay optimistic and be asked again in 100 years, when he will not be around anyway
"Well, folks, you heard it from an optimist and a pessimist and we'll let you decide which way you lean." — Fred Neumann
Neumann's bottom line is that the reflex to read a US bond market wobble as another 1997 gets the direction of Asia's exposure backwards: the region is now a net creditor with local investors owning its stock markets, and the real transmission runs through American mortgage rates, American consumers and the borrowed money behind the AI build-out.
Books & Resources Mentioned
The Power of the Optimism, or something like it (Van der Linde could not recall the title or the author of a book he read a long time ago, arguing from 100 years of the US market that not doing anything at all was the best investment strategy)
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