Bond market going through a rough patch; should equity investors be worried? Experts weigh in
₹1,000 with a 10 per cent coupon rate, you receive ₹100 in annual interest. However, if the bond's price declines to ₹800, the effective yield on the bond increases to 12.5 per cent. Conversely, if the bond price rises to ₹1,200, the bond yield decreases to 8.33 per cent.
Bond market movement impacts the equity market also. If the yields on the US bond yields rise, it is negative for the Indian equity market since it can cause heavy foreign capital outflow. Also Read: Bond yields spike amid bets of interest rates staying higher for longer; how will it impact Indian stock markets? V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services pointed out that the bond market rout of this magnitude which pushed the yield on a US 30-year bond to 5 per cent was unexpected.
"Wrong market positioning caused this massive selling. Now the market is positioning for a ‘higher for longer’ rate regime," Vijayakumar observed. Vijayakumar believes the selling of bonds appears to be a bit overdone as he underscored yields have softened a bit after the rout and the 5 per cent crash in crude prices also has helped in pushing the dollar index below 107.
"Going forward the trend in the bond market will depend on the Fed’s stance which, in turn, will be decided by inflation, growth and jobs data in the US," said Vijayakumar. Also Read: Inclusion of Indian bonds in JPMorgan bond index to have limited impact on Indian bonds, rupee, says ASK Wealth Aryaman Vir, CEO of WiseX pointed out that the US bond market rout is a dramatic event with a variety of contributing factors, including aggressive interest rate hikes by the Fed, rising inflation and a slew of hawkish comments by Federal Reserve officials. "While the bond market rout is
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