Why ASX tech shares are crashing on Wednesday

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.

Taking the brunt of the losses include EFTPOS provider Tyro Payments Ltd (ASX: TYR) sliding 5.10% to $3.91 and Zip Co Ltd (ASX: Z1P) down 4.93% to $6.75.

On the big end of town, heavyweights Afterpay Ltd (ASX: APT), Xero Limited(ASX: XRO) and WiseTech Global Ltd (ASX: WTC) are logging consistent declines, down between 2.6% and 3.8%.

Other notable losers include Nextdc Ltd (ASX: NXT) down 4.09% to $11.95, Carsales.com Ltd (ASX: CAR) down 3.53% to $24.59 and Altium Limited (ASX: ALU) down 2.89% to $34.57.

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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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Alphabet (A shares), Alphabet (C shares), Altium, Apple, Facebook, Microsoft, Tyro Payments, WiseTech Global, Xero, and ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO, Altium, WiseTech Global, and Xero. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Apple, Facebook, Tyro Payments, and carsales.com Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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