InvestorQ : Is it true that bond yields also impact the valuation of equity stocks and why is that so?
Aditi Sharma made post

Is it true that bond yields also impact the valuation of equity stocks and why is that so?

Answer
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Aashna Tripathi answered.
1 year ago


From a low of around 6.50% in June 2017, the 10-year bond yields had gone up by over 200 basis points. This has been driven by 3 essential factors. Firstly, the domestic inflation (especially food inflation) has been on an uptrend after the 2017 Kharif output was lower than expectations. Higher crude oil prices have added to this concern. Secondly, the 30 basis points spillage in fiscal deficit in the Union Budget 2018 also means that government will have to borrow more at higher yields. Thirdly, global yields across the US, Europe and even Japan have shown a rising trend as these economies are seeing the return of inflation. Let us come to inflation expectations! With the government fixing MSP at 150% of cost of production, food inflation will remain high this year. Brent Crude is already at $75/bbl and this could also push inflation and yields higher.