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Higher bond yield spooks the market

Market volatility has been in an upswing making investors nervous and squeezing out many retail traders. On another volatile day, the traders saw today Nifty open almost one per cent up at 14855.
However, as the day progressed it quickly erased all gains and went 1.11 per cent by the end of the day’s trading.

High US Treasury bond yields were the main drivers of the bearish sentiment along with rising number of coronavirus cases in the country.

US 10-year Treasury yields hit their highest yield in 13 months rising to 1.70 per cent. Emerging markets like India are particularly vulnerable to high interest rates in the US bond market as it makes holding risk-free assets like US Treasury more attractive compared to vulnerable equity markets like that of India.

Yesterday, Fed Chairman Jerome Powell reiterated the dovish stand of the central bank and assured investors that accommodative policies will be maintained by the Federal Reserve as long as the unemployment rate does not climb down. Jerome Powell also assured that the Fed will have something to announce regarding the SLR too which boosted the US equity markets overnight.

However, the creeping inflation is having its effect on the bond yields and there are doubts about how long the Fed will be able to keep its accommodative stance if the inflation rate rises any further.

The surge in COVID-19 cases in India is also causing panic among investors as there are concerns that it can derail the economic recovery. India on Thursday recorded 35,871 new COVID-19 cases, the highest single-day rise in over 100 days, which took the infection tally to 1,14,74,605, according to Union health ministry data.

The technical charts do indicate a short term correction in the market. But the bullish sentiment is expected to comeback soon. There could be a melt up in the global equity markets in the second quarter of this year as the economy recovers and the US Fed implements yield curve control to tame the rise in bond yields. Meanwhile, investors are advised to continue with the ‘buy the dip’ strategy with large stop loss range to account for the high volatility.

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