Why are global bond yields rising and how is it impacting Indian stock market?
macroeconomic data that makes a case for continuing with the monetary tightening policy through interest rate hikes. In the US, the benchmark 10-year Treasury yields have soared to levels around 4.366%, their highest since 2007, prompting investors to initiate risk-off trade. The US treasury yields have climbed almost 40 bps month-to-date amid rising bets that interest rates will remain elevated for longer.
This has spooked investors and the equity markets have remained mostly under pressure. To tame the soaring inflation, the US Federal Reserve has increased the borrowing costs to their highest level in more than 22 years, in a rate hike cycle that started in March 2022. In its latest monetary policy, the Federal Open Market Committee (FOMC) hiked benchmark interest rate in the 5.25%-5.50% range, its 11th hike in its last 12 meetings, and left the door open to another increase.
Just as markets were hoping for easing interest rates, strong US economic data reduced the possibility of it. US retail sales rose 0.7% in July, far higher than expectations, while the economy grew at a 2.4% annualized rate in the second quarter. This was well above the expectations and market participants believe that the inflation would not cool off soon, raising bets of further interest rate hikes.
“Interest in US bonds is driven by GDP growth expectations on the back of a resilient jobs market and continued higher inflation that is keeping the expectations of “higher for longer" interest rates," said Srikanth Subramanian, CEO of Kotak Cherry. He expect the US Fed to increase the rates by 25 bps in September thus pushing the US yields higher. Meanwhile, markets are looking ahead to Fed Chair Jerome Powell’s address on Friday at the Jackson
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