Bond yields just hit their highest points since 2011, with Australia's 10-year government bond yield reaching roughly 5.19%.
The US 10-year Treasury has climbed to 4.79%, its highest level since October 2023.
When the risk-free rate moves this far, the valuation of the market typically moves with it.
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What the bond market is saying
June quarter GDP grew 0.4% and annual growth reached 2.1%, both faster than economists expected.
Meanwhile, trimmed mean inflation remains at 3.6%, comfortably above the Reserve Bank's target band.
Traders now put a 60% probability on a rate rise at the 29 September meeting, up from 52% before the GDP release.
The three-year bond yield has pushed to 4.82%, which tells you the market expects higher rates to persist.
Why higher yields hurt some ASX shares more than others
The mechanism is simple arithmetic.
A company's value is its future cash flows discounted back to today. By raising the discount rate, distant cash flows lose more value in today's terms.
Businesses whose earnings are decades away, or which carry heavy debt, therefore suffer twice.
The result is a wholesale repricing of ASX shares.
Partly as a result of this, the S&P/ASX 200 Index (ASX: XJO) had its worst day in three months even as the growth data improved.
Transurban is the best example
Transurban Group (ASX: TCL) owns toll roads with concession periods running for decades.
The shares closed at $13.76 on Wednesday, down 1.43%, and now are close to a 52-week low of $13.25.
The distribution yield is 5.01%, which is almost exactly what the 10-year government bond pays.
That's part of the problem. An investor can now earn a similar income from a government guarantee, without accepting traffic risk or $23 billion of debt.
The offset is that Transurban's tolls escalate with inflation, so its cash flows grow while a bond coupon does not.
Higher inflation is typically good for the revenue line and typically bad for the discount rate applied to it.
Goodman Group is another exposed ASX share
Goodman Group (ASX: GMG) exhibits the same pressure as Transurban group
The company's shares trade near $27.50 against a 52-week high of $34.78, on a price-to-earnings (P/E) ratio of 20.87.
Despite this, the company's results were strong. FY26 operating profit rose 15.7% to $2,675 million, with operating earnings per security up 10.1% to 129.9 cents.
Data centres now represent roughly $15.4 billion of work in progress, or 78% of the total.
Higher yields raise its cost of capital and lower the value of the assets it builds, which is a direct headwind.
The counterweight for the company is a 6.4 gigawatt power bank across 16 cities and FY27 guidance for 9% earnings growth.
Foolish takeaway
Higher yields are not a reason to abandon long-duration ASX shares.
But they could potentially offer more attractive entry points for long-term investors.
Transurban is closer to fair value than it has been for years, though its yield no longer looks that special beside a government bond.
Goodman still has the better growth story and is priced accordingly.
The mistake would be assuming the market has finished adjusting, because the bond market clearly has not.
