US Bond Yields, reached 4.61%. This is a significant increase compared to last year and higher than the historical average. The US Treasury Bond Yield highest in the last 5 years is 4.9%
In America, Bond Yield reached 4.61%. Bond Yields movement can be driven by below key factors:
- Interest Rates: This is a big one. Bond yields tend to move in the same direction as prevailing interest rates. If the Federal Reserve raises interest rates, bond yields typically rise as well. This is because investors can now earn a higher return on other investments like savings accounts or new bonds.
- Risk Perception: Changes in how risky investors perceive a bond can also affect yields. If investors become more worried about the creditworthiness of a bond issuer (like a company or government), they will demand a higher yield to compensate for the increased risk.
- Economic Expectations: The overall economic outlook can influence bond yields. If investors anticipate a strong economy with rising inflation, they may sell bonds, driving yields up. Conversely, expectations of a weak economy can lead investors to seek bonds as safe havens, pushing yields down.
Does increase in US 10 Y Bond Yield, impact Indian Market?
The relationship between US bond yields and the Indian stock market can be complex and multifaceted, but here are some general effects to consider:
- Interest Rate Differential: Changes in US bond yields can influence the interest rate differential between the US and India. If US bond yields rise relative to Indian bond yields, it could attract global investors seeking higher returns. This might lead to capital outflows from the Indian stock market as investors reallocate their investments to the US, putting downward pressure on Indian stock prices.
- Foreign Institutional Investment (FII) Flows: Foreign institutional investors (FIIs) play a significant role in the Indian stock market. Changes in US bond yields can affect their investment decisions. Higher US bond yields might make US assets more attractive compared to Indian assets, leading to reduced FII flows into India and impacting stock prices.
- Currency Exchange Rates: Changes in US bond yields can impact currency exchange rates between the US dollar and the Indian rupee. If US bond yields rise, the US dollar might strengthen against the rupee. A stronger dollar can make Indian exports more competitive but could also make imports costlier, affecting various sectors in the Indian stock market differently.
- Global Risk Sentiment: US bond yields are often seen as a barometer of global risk sentiment. When US bond yields rise, it could indicate expectations of higher inflation or tighter monetary policy, which might lead to a risk-off sentiment in global markets, including India. In such scenarios, investors might move away from riskier assets like stocks towards safer assets like bonds, impacting Indian stock prices.
- Corporate Borrowing Costs: Changes in US bond yields can influence global borrowing costs. Indian companies that have borrowed in foreign currencies or have exposure to global financing markets might see their borrowing costs increase if US bond yields rise. Higher borrowing costs can impact corporate profitability and, consequently, stock prices.
- Overall Economic Outlook: US bond yields can reflect the overall economic outlook, both in the US and globally. Changes in US bond yields can signal shifts in economic growth expectations, inflation outlook, or central bank policy. These factors can indirectly impact investor sentiment towards the Indian economy and its stock market.
Bond Yield increase results in the fall of Indian stock market. Remember, bond yield moves opposite to the stock. Bond yield goes up and stock market goes down. When people get 5% without any risk, they do not take the risk of stocks.
Perhaps this question arises, what difference does it make to us? Our banks are anyway giving higher returns on fixed deposits. The question is good but the total economy of India is limited to only three and a half trillion dollars. The size of America’s GDP is ten times that of India. Like India, black economy is also there. But right now only the legal economy is considered.
In an economy of about 30 trillion dollars, a yield of 4.6% is a very big number. Leave aside one percent, if there is a difference in basis points, there is an earthquake.