They say in investing that it’s better to be three months too early than three minutes too late. And not for nothing either. US and Australian stock markets have cratered over the past trading sessions with a tough short-term outlook after investors brought forward assumptions as to when the US Federal Reserve may lift cash rates.

In my opinion exactly when the rate rise happens is of minor importance compared to the effects it will have on the valuations of popular ASX yield shares that have been bid up to prices unrelated to their underlying valuations.

It’s no secret that as the yield curve rises then equities priced partly off the long end of the curve are likely to come under substantial selling pressure. In other words if the rate of return on longer dated US treasuries and other government debt starts to climb as bond prices fall then risk-on shares with moderate yields and limited growth prospects are likely to cop a hiding.

Let’s take a look at a trio of popular yield plays with defensive earnings streams that are already feeling the effects of falling bond prices.

Sydney Airport Holdings Ltd (ASX: SYD) is an attractive and well run business with all the competitive advantages you would expect from a critical piece of national infrastructure. However, just a week ago it was trading well above $7 per share to provide an annualised yield of just 4.2% based on its most recent distribution. US 10-year treasuries could easily offer a normalised 2.5% return in the near future and that means there would only be a moderate differential between the two returns on offer.

Investors should note Sydney Airport is not a risk free asset. On the contrary it carries a lot of debt and is a risk-on play with the global travel sector vulnerable to a significant slowdown in the event of a global pandemic or act of terror for example. In my opinion the airport would need to yield closer to 5.5% to justify a risk-on investment in its equity. This would mean a valuation under $6, which is still well above today’s knocked down valuation of $6.60.

Transurban Group (ASX: TCL) is another infrastructure business that ticks all the boxes as an investment opportunity except the most important one of valuation. Transurban shares traded above $12.50 in August on a yield of just 3.6% based on its FY16 distribution of 45.5 cents per security.

It owns defensive assets, but remains a risk-on play thanks to its ballooning debt profile and an FY16 return on equity of just 4.4%. Given the cash flows it looks even more overvalued than Sydney Airport and despite its recent 10% fall in price I expect there could be more share selling ahead.

Scentre Group Ltd (ASX: SCG) was perhaps the most overvalued of all these yield plays over the last month. I took a look at its full year results on August 23 and was shocked to find the Westfield shopping centre operator and real estate investment trust yielded just 4.2% based on its then valuation of $5.09 per share. I wrote then that Scentre looks expensive for dividend shoppers as “shares look overvalued and vulnerable to a correction if we have witnessed the bottom of the global cash rate cycle”. Since then the stock has fallen 12% to $4.48 and still looks expensive given the moderate yield for a REIT and substantial premium to net tangible assets it trades on.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.