How Rising Bond Yields Are Frightening The Stock Markets?

Subscribe to GoodReturns
For Quick Alerts
ALLOW NOTIFICATIONS  
For Daily Alerts

    On Friday, we saw something that rarely happens. A mature market like the US markets saw the Dow Jones plunging 666 points in a single trading day. It is extremely rare to see such a sharp fall on the Dow.

    How Rising Bond Yields Are Frightening The Stock Markets?
    A single reason for the drop was the US treasury yield rose to near 2.85 per cent, after strong US jobs data.

    It was a terrible week for the Indian markets as well with the Sensex seeing the seventh highest fall in a single trading day, when it plunged 840 points. While one of the reasons for the fall was the Long Term Capital Gains, investors are also worried of rising bond yields in India and a huge sell-off in bonds. The 10-year bond yield in India jumped to 7.6 per cent, something that we have not seen in the last 22 months.

    Markets are bracing for more as bond yields across the globe rise. In fact, this is happening both in the US and in India.

    What does this have to do with the stock markets? The answer is simple, when debt yields start rising individuals sell stocks and park money in debt, especially if returns improve significantly. We have the Sensex at a staggering 35,000 points and the Sensex trailing p/e at near 25 times, which is significantly higher than the average of 17 times seen in the past.

    Thus it makes sense for investors to sell stocks that are highly valued and park money in debt, when yields are rising. A further rout in global markets is possible, if yields keep jumping.

    GoodReturns.in

    Read more about: sensex nifty
    Story first published: Saturday, February 3, 2018, 9:34 [IST]
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'
    India's LARGEST EVER political poll. Have you participated yet?

    Find IFSC

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more