The past few months have witnessed a sharp rise in the bond yields. The bond yields have considerably gained over 60 points and touched 7.73% levels since April 2018.The hike in oil price, the rate of inflation and fiscal deficit explain the increase in the bond yields in the current market scenario.
What determines the rise in the Bond Yields?
Bond yields are influenced by the dominant economic conditions. A high rate of inflation results in higher bond yields. As for the stocks, when the stock market goes up, the bond suffers a low phase due to the possibility of a higher rate of returns on the investments from the stock market. The exact opposite happens when the stock market goes down.
How rising bond yields affect the equity investors?
The economic factors and the existing government policies have an influence on the investment market and the investors. Find out below how the equity market is affected by the hike in bond yields:
If the increase in the bond yields is comparatively more than equity yields, the equity investors tend to get lesser returns on their investment when compared to the returns of the bond investors.
Higher yields have a negative influence on the equity market, which directly affects the equity investors in terms of returns and risk appetite
The medium scale investors will have difficulty in raising debt with the rising competitive yields. The inability to raise debts will affect the equity investors and their investments considerably.
The equities were more attractive to the regular investors in terms of returns when the bond yields were low and stagnant for a couple of years. With the increase in the bond yields, more equity investors are bound to find the debt funds more attractive in terms of risk adjustments.
Higher bond yields influence the Indian rupee and equities by exposing it to the outflow of the dollar. The increase in the price of debt will increase the price of capital too and will ultimately depress the valuation of the equities held by the investors.
Higher yields will attract the foreign investors towards the Indian debt investments; this will make the FPIs draw out returns from the debt. This cycle of events will affect the Indian rupee negatively, which will again have a direct effect on the equity investors.
Depreciation in the value of rupee will yield low equity returns for the investors in terms of dollars.This