2 days ago
US Bond Yields and Oil Prices Pose Different Market Risks
Stock markets are watching two big risks: expensive oil and higher US interest rates.
US bond yields show how much investors can earn from lending money to the US government.
When those yields rise, stocks can look less attractive and money may move toward US assets.
Higher oil prices are especially important for India because India imports a lot of oil.
Expensive oil can increase inflation, weaken the rupee, and raise the cost of running businesses.
Most analysts say oil at about $90 a barrel is manageable for now.
They are more worried if oil stays near or above $100.
One expert says higher US yields are the bigger problem, while another says oil is more directly connected to India’s economy.
The worst outcome could be for both risks to continue at the same time.
US 10-year bond yields reached 4.72%, while 30-year yields hit their highest level since June 2007.
Brent crude rose nearly 3% to about $91 per barrel after reported US-Iran strikes.
Experts broadly view oil at $90 as manageable for India but warn that $100 could become significantly damaging.
V K Vijayakumar considers rising US yields the larger global equity risk, while G Chokkalingam favors oil prices as the bigger Indian-market threat.
Analysts warn that persistently high oil prices and bond yields together could pose the greatest risk to Indian equities.
- Who
- Global stock-market investors, Indian policymakers and market analysts, including V K Vijayakumar, G Chokkalingam and Harshal Dasani.
- What
- Investors are assessing whether rising US bond yields or crude oil prices near $90 per barrel pose the greater risk to stock markets, especially Indian equities.
- Where
- The risks affect global markets, with particular focus on India and its equity market.
- When
- The bond-yield increase and oil-price rise were reported recently; the reported strikes occurred early Monday.
- Why
- Higher yields can attract money toward US debt and pressure stock valuations, while expensive oil can worsen India’s import bill, inflation, currency position and economic growth.
US Bond Yields Are the Bigger Risk
Oil Prices Are the Bigger Risk
Primary market threat
US Bond Yields Are the Bigger Risk
V K Vijayakumar says rising US bond yields are the larger issue because they affect equity markets globally and make US debt assets more attractive.
Oil Prices Are the Bigger Risk
G Chokkalingam says oil prices are unquestionably the bigger risk for Indian markets because they directly affect India’s large oil-import bill and economic conditions.
Evidence and transmission
US Bond Yields Are the Bigger Risk
Higher yields can compress stock valuations, redirect global flows toward dollar assets and intensify foreign capital outflows, according to Harshal Dasani.
Oil Prices Are the Bigger Risk
Chokkalingam argues that Indian equities were not greatly affected when US interest rates rose from nearly 0% to 5.25%, while oil directly affects import costs, inflation, the rupee and corporate profitability.
Conditions that change the risk
US Bond Yields Are the Bigger Risk
Oil at $90 is currently absorbable, but Vijayakumar says crude above $100 would become a major concern; a US 10-year yield near 5% would also be a serious problem.
Oil Prices Are the Bigger Risk
The oil-focused analysts also view $90 as manageable, but warn that crude near or above $100 for a sustained period would hurt India’s economy and stock market. Dasani says the greatest tail risk is both high oil and high yields persisting together.
Key facts
- US 10-year yield
- 4.72%
- 30-year US bond yield
- Highest level since June 2007, according to the article
- Brent crude price
- Near $91 per barrel after rising almost 3%
- Key oil threshold
- Analysts identify $100 per barrel as a significantly greater risk for India
- India’s oil exposure
- India is described as the world’s third-largest oil importer
- Potential inflation impact
- Harshal Dasani estimates a sustained $10 oil-price increase could add 25 to 30 basis points to inflation
- Potential yield threshold
- V K Vijayakumar says a rise in the US 10-year yield to 5% from about 4.7% would be a major problem
Quotes
V K Vijayakumar
Chief Investment Strategist at Geojit Investments
“You can look at the evidence. When US interest rates rose from nearly 0% to 5.25%, there was not much impact on the Indian equity market. There is enough evidence to suggest that the correlation between US bond yields and the Indian stock market is not very strong.”
livemint.com
“Rising US bond yield is the bigger issue because it will impact equity markets globally. Crude oil at $90 a barrel is something that we can absorb right now. But if it flares up beyond $100, that will become an issue.”
livemint.com
Sources
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