This chart looks at the sector performance relative to the MSCI APAC ex-Japan Index in a rising yield environment. Historically, rising U.S. Treasury (UST) yields benefit sectors that thrive in an economic upturn. Cyclical sectors such as financials and banks typically enjoy a higher volume of business activities. A steeper yield curve also implies improvement in net interest margins on their lending. Materials, energy and industrials typically also outperform the benchmark when UST yields are rising.

In contrast, consumer staples, health care, and utilities would underperform the MSCI APAC ex-Japan Index when yields rise. Since we expect UST yields to rise in the medium term on the back of economic recovery, the rebound in cyclical sector is expected to continue.