Why increase in Bond yields is creating panic in the equity market? Also, how does Gold generally react in such times?

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Do hit the ‘re-tweet’ and help us educate more investors. Join my telegram - t.me/kirtanshahcfp (1/n)
This thread will require you to do some brush up.

Before we understand this topic, its important to understand what happened the last 6-8 months. Have written a detailed thread on 'liquidity' & I advice reading it first before we move any ahead (2/n)

2 important take aways from the liquidity thread,

(a) FII’s were investing in Emerging Markets because the ‘interest rates’ in their country was close to zero

(b) Because of that the ‘$’ was decreasing (3/n)
Now lets come to the point, why are yields going up?

Governments are massive borrowers world over. US lately talked about another $1.9T stimulus and India needs to borrow 12L cr next year is the reason for rising yields. (4/n)
Such massive borrowing leads to rise in yields.

Here’s a detailed thread on the same, do read this before going ahead (told you this thread requires some brush up 😀) -
So now, if yields go up in the US, which was close to 0 earlier, will the same amount of money b invested in India by the FIIs? Probably not

Increase in yields gives an opportunity 4 the FIIs to invest in the US as they will make more predictable returns in the US itself (6/n)
This is expected to reduces the inflow in equities from FIIs, which has been the prime reason why the markets shot up in the past & hence the panic now in stocks (7/n)
How does gold react generally in such times?

Now if the FII’s start selling the Indian equity & take back their monies, $ will increase (exactly like it decreased when FIIs came in with their investments).

Increase means from $1 – 72 becoming $1 - 75 (8/n)
India imports gold in $. So when gold trades at $1800, we have to pay 1800*72 = 1,29,600 to import right now.

But if $ goes up to $1 – 75, the same gold will cost $1800*75 = 1,35,000 (9/n)
Logically, if the commodity becomes expensive from 1,29,600 to 1,35,000, demand falls and hence the commodity is expected to fall in the near term. (10/n)
So, if yield increases, equity falls, $ increases & gold falls.

This is how generally markets behave in the near term. Please don’t use this as an investment advice; this is only for education purpose :) (11/12)
We have written multiple threads earlier on
- Sector Analysis
- Macro Economics
- Debt Markets
- Real Estate
- Equity Markets etc.

You can find them all in the link below. Do hit the re-tweet & help us reach a larger audience ☺ (**END**)

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