Does the #US10Y yield puzzle affect India? An earlier tweet covered the various angles to the US10Y yield puzzle. The perceived softness around #USgrowth appears to stand-out as a prominent reason. During the same time last week, we saw a sharp rise in the Indian 10Y...(1/12)
...yield to 6.18%. This appears to have been on the back of the #RBI's surprising (disappointing for traders/underwriters) choice of picking relatively illiquid papers for its new tranche of G-SAP 2.0. The announcement of a new 10Y benchmark paper auctioned on...(2/12)
...Friday, with a higher traded yield was another reason. Are the US and Indian bond markets related in anyway? The answer is an obvious yes. Given that the US is a key global driver, the #Fed's policy rates naturally push monetary policy of emerging markets and...(3/12)
...as a result, RBI policy rates. Therefore, one can loosely relate this directionally to that of yields. But it is important to note here that the US and Indian bond market yields have very different structural drivers. US treasuries have witnessed a secular bull...(4/12)
...market for nearly four decades. The same cannot be said for the Indian bond markets that have been more range-bound swinging within a range of 6% to 9%, with some brief breaches outside this range. Compared to US yields that have seen a secular decline in policy...(5/12)
...rates, an #EM like India has seen more cyclicality in policy rates. Indian yields move more closely to crude, liquidity, and inflation, broadly in that order. However, a post COVID yield appears to tag itself almost entirely to the RBI's language and its market...(6/12)
...presence. As a result, there is not much of a correlation that one can pin both yields down to. If one were to boil correlation between the IN10Y/US10Y down to a number, a 20Y correlation would seem to be as low as 7%. However, if one looks at correlations for...(7/12)
...shorter time periods or phases, one can arrive at higher 50-60%, 1-year correlations during specific phases. While this might not have much of a take-away, an interesting relationship that can be observed is that since the global financial crisis in '08, both...(8/12)
...US and Indian yields appear to have similar inflection points. These points of inflection, interestingly coincide with #crude price inflections as well. Having said all of the above, there does appear to be a broad #yieldspread that...(9/12)
...the Indian 10Y has with the US10Y. Since 2010, the IN10Y/US10Y spread averaged 5.3%, with the last 1Y average spread at 4.8%. Therefore, one can statistically read the sustainability of Indian 10Y yields based on how far-off their spreads are...(10/12)
...against the US10Y. The India/US spread has broadly seen a mean-reversion around this long-term average. And therefore, a very broad generalisation based on these spreads, would indicate an Indian 10Y to inch closer to a 6.6% (1.3%+5.3%). But...(11/12)
...again, these are just statistical derivations, devoid of market narratives and just some food for thought, on what data throws up.(12/12)
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