Bond Yields Add Fresh Pressure on Markets.. Here’s Why!

Indian stock markets have already been under pressure from West Asia tensions and elevated crude oil prices. Rising US Treasury bond yields have now emerged as another major headwind. Over the past eight weeks, the Sensex has lost 6,590 points while the Nifty has declined by 2,149 points, wiping out more than ₹26 lakh crore in BSE market capitalisation. The US 10-year Treasury yield climbed to 5.31%, while the 30-year yield moved above 5.65%—levels not seen since 2007 and 2002 respectively.

Higher US bond yields are being driven by persistent inflation concerns, elevated oil prices, expectations of tighter monetary policy, heavy government borrowing and increased corporate debt issuance to fund artificial-intelligence infrastructure. When US Treasuries offer higher returns, they become relatively more attractive to global investors compared with riskier emerging-market equities. This can encourage foreign investors to pull money out of markets such as India. A stronger US dollar and pressure on the rupee can further reduce returns for overseas investors. Foreign portfolio investors consequently remained heavy sellers, withdrawing a net ₹35,861 crore from Indian equities in September.