ASX tech shares open to a sea of red on Wednesday.
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ASX tech shares are taking off after Wall Street as rising bond yields pressured investors out of fast-growing technology shares.
The S&P 500, Nasdaq Composite and Dow Jones Industrial Average logged sharp declines, sliding 2.04%, 1.63% and 2.83% respectively.
Major US tech shares including Alphabet, Apple, Facebook and Microsoft fell between 2.38% to 3.66%, weighing on the S&P 500 and Nasdaq.
Benchmark 10-year US treasury yields have continued to rise this week, trading at their highest levels since late-June.
The yield on benchmark 10-year Treasury notes rose 5 basis points on Tuesday night to 1.541% and are currently fetching 1.546%.
A sea of red for ASX tech shares
The S&P/ASX Information Technology (INDEXASX: XIJ) index is currently the worst performing sector on Wednesday, down 2.85%.
This compares to the S&P/ASX 200 Index (ASX: XJO) which is currently down 1.37% to a 3-month low of 7,176.
Why do yields matter?
Tech shares are able to justify expensive valuations from much higher cash flows expected in the future.
As yields increase, this can make future cash flows appear less valuable in the present.
Higher borrowing rates could also hinder growth prospects, especially if the company is already carrying significant debt.
ASX tech shares have enjoyed a prolonged era of ultra-low interest rates.
But looming interest rate hikes could pose a risk to tech and high-growth sectors.
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The S&P 500 just dropped 2%. Why is this impacting ASX 200 shares?
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