Rising US Treasury yields above 5.2% have impacted global stock markets. Check details (AI-generated image for representational purposes only)
Rising bond yields have caught global attention and have sent ripple effects across the world's major stock markets. US 10-year Treasury yields have surged above 5.2%, the highest level since 2007. The sharp rise has even rattled the Indian stock market, with the Nifty 50 hitting its six-month low level and slipping below 22,600 on Tuesday, September 29. But why are US Treasury yields rising, and how does it impact the Indian stock market? Let’s decode
When the US 10-year Treasury yield rises to high levels like 5.25%, investment in bond yields becomes attractive and may contribute to the migration of billions of dollars back to the US by foreign institutional investors (FIIs). Hence, FII selling can also add pressure to the Indian stock market.
Why are bond yields rising?
Rising bond yields are emerging as a key headwind for Indian equities and may add pressure to the Indian stock market. “Elevated crude prices, persistent inflation concerns and heavy government borrowing are keeping yields higher,” stated Ravi Singh, Chief Research Officer at Master Capital Services Ltd.
How rising bond yields are rattling Nifty and Sensex
Higher bond yields are increasing the attractiveness of fixed-income assets and can keep FII flows under pressure.
“Higher domestic yields raise the cost of capital for corporates and can weigh on earnings and valuations. Rate-sensitive sectors such as banks, NBFCs, IT and metals could remain under pressure as investors reassess valuations and risk appetite,” explained Ravi Singh.
FII selling, pressure on rupee
The multi-year highs by the US Treasury yields have made the risk-free US debt category one of the most attractive alternatives for global investors.
“This shift has triggered persistent net selling by Foreign Institutional Investors (FIIs), who are moving funds out of emerging equities to lock in safer returns abroad. This sustained foreign capital outflow has put pressure on domestic currencies, pushing the Indian rupee towards lower historical levels against the US dollar, while outstripping the buying power of local domestic funds,” explained Mayank Jain, Market Analyst, Share.Market by PhonePe.
What is a government bond?
A government bond is a document where the government acknowledges that it is taking a loan from someone and details the amount it will pay back over a fixed duration of time. The yield on a government bond is the interest rate the government has to offer to investors from which it borrows money.
Indian stock market today
The Indian stock market saw a sharp sell-off in the first half of Tuesday's trading session. Nifty 50 dipped below 22,600 today, with IT heavyweights like Wipro, Infosys, Titan and HCL Tech emerging as major laggards.
However, the benchmark indices saw a sharp recovery in the second half of the day and surged from their intraday low levels. Nifty 50 was down 0.46% at 22,674.70 points. BSE Sensex was down 351 points at 72,420.34 points at 2:40 PM on Tuesday, September 29.
