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Will rising Treasury yields really whack EM?

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A spike in U.S. Treasury yields may spur fears of a repeat of last year's emerging markets rout, but analysts are divided on whether there's much correlation.

"It is unlikely that the severity of the May/July 2013 correction will be replicated," Societe Generale said in a note Thursday after studying U.S. Treasury yield shocks since 2000. It noted that last year's volatility was unique because markets had gone nearly three years without a Treasury yield shock.

Read More Is the chase for yield running out of breath?

"Only a move to 3.00 percent from [the recent 2.46 percent] will be a potential source of concern," it said.

On Thursday, U.S. 10-year Treasury yields spiked as high as 2.61 percent from July's lows around 2.46 percent after data showing U.S. labor costs are on the rise, spurring concerns the Federal Reserve's first rate hike could be on the cards sooner than currently expected. Treasury yields have retreated a bit to around 2.57 percent in Asia trade.

"A U.S. Treasury yield shock in the absence of a change in Federal Reserve policy language—in particular the clear signaling of a Fed rate hike—is likely to produce a fairly benign outcome for emerging market assets," the note said.

Read More Is Asia's growth getting hamstrung?

"This is all the more true if the U.S. Treasury yield move is accompanied by a sharp recovery in global growth expectations," it said. "[The] emerging market growth outlook is also going to be key determinant to emerging market asset performance in a rising U.S. Treasury yield environment."

Last year, emerging market assets sold off after the U.S. Federal Reserve first broached its plans to begin tapering its asset purchases, as expectations that would cause interest rates to rise spurred an outflow of funds.

The selloff saw $14.1 billion exit emerging market equity funds, while $14.04 billion said good-bye to the segment's bond funds in 2013, according to data from Barclays.

Read More Why tapering didn't push up bond yields

Taper tantrum also sent U.S. Treasury yields spiking from around 1.60 percent to around 3.0 percent by the beginning of 2014.

But other analysts disagree with Societe Generale, expecting rising yields will weigh emerging markets.

"The easy monetary policy in the U.S. since the 2008 financial crisis has been funding the consumption in emerging economies," Morgan Stanley said in a note Thursday. It expects the rising bond yields will boost the cost of capital in emerging markets, increasing funding pressure for capital-starved economies.

Read More Why the EM bond rally is different this time

"A few emerging markets may have to increase their interest rates disproportionately to prevent exodus of capital," which will directly affect the growth outlook, especially for countries that need external capital to fund growth, it said.

Domestic consumption in these markets will likely take a hit, Morgan Stanley added.

"Companies which are dependent on the rising consumption boom in these economies will suffer as consumers rebalance their spending habits," it said, noting in Southeast Asia, consumer plays are likely to see their double-digit sales growth head into single-digits.

"As [the] U.S. 10-year bond yield rises, [Southeast Asia's] domestic consumption stocks get impacted negatively," it said, citing high correlation since last year's emerging markets selloff.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

Contact World Economy

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