US 10-year bond yields surge to 16-year high near 5%
bond yields surged to a 16-year high on Thursday to within sniffing distance of the psychological 5% mark, causing jitters in the global stock markets already edgy over the escalating West Asia conflict.
The rising US yields along with a stronger dollar can raise India Inc's overseas borrowing and debt-servicing costs, though economists say India's strong fundamentals offer protection.
US 10-year treasury yields hit 4.98% on Thursday, the highest since 2007.
«So far, the impact should largely be on the cost of dollar funding, but given relatively low current account funding requirements, the Indian macroeconomic backdrop can withstand higher funding costs,» said Rahul Bajoria, head, EM Asia (ex-China) economics, Barclays.
The US 10-year treasury was trading at 4.96% on Thursday after crossing the 4.9% mark, a level last witnessed nearly 16 years ago during the global financial crisis, fuelled by expectations that that the Federal Reserve will keep interest rates at restrictive levels to cool inflation that's still stubbornly above the central bank's target.
The benchmark BSE Sensex fell 247.78 points, or 0.38%, to 65,629.24, while the broader NSE index lost 53.55 points, or 0.27%, to 19,617.55 the back of the selloff in global stocks on worries over escalating tensions in West Asia and rising yields in the US.
«The US yields are now clearly heading north of 5% and this will have a bearing as the interest rate differentials have narrowed significantly between the US and India and this poses a risk of flight of capital from India to the US,» said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank, adding that along with the treasury yields rising, another important negative impact is the crude oil prices.
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