The surge in Treasury yields has pushed yield gaps with emerging Asia bonds toward record levels, raising the risk of capital outflows from the region, according to strategists.

A selloff in US government bonds deepened this week, with the 30-year yield surging to its highest since 2004 and the benchmark 10-year yield reaching its highest since 2007. Malaysia’s 10-year yield discount widened to 125 basis points, the most since 2007, while yield gaps for Indonesia and Thailand are nearing record levels.

“Longer-dated EM Asia bonds are particularly at risk from higher Treasury yields, especially low-yielders such as South Korea and Thailand,” said Stephen Chiu, chief emerging markets FX strategist at Bloomberg Intelligence. US yields’ rise could “either spur foreign outflows, or reduce net foreign inflows” into the region’s bonds.

The widening yield gap and potential capital outflows may pressure local currencies, driving regional central banks to keep domestic interest rates elevated, boosting borrowing costs and potentially weighing on economic growth. Yield moves in emerging Asia were more modest, rising by only as much as 7 basis points in Malaysia and Thailand, thanks to stable domestic inflation and resilient currencies. Thai 10-year bonds reached a 290-basis-point gap, nearing a record low. The China-US 10-year yield gap widened to the most on record, while Indonesia’s spread narrowed to 188 basis points.

“The relentless uptrend in US yields does provide an uncomfortable backdrop for bond investors,” said Homin Lee, a senior macro strategist at Lombard Odier Singapore. “But it also revealed the resilience of USD and local debt markets in Asia, with the exception of more vulnerable Indonesia and Philippines.”