US Treasury Yield and India Markets: 10-Year Near 5.2% After Hot US CPI (October 15)

For India markets this Thursday, October 15, the number everyone is watching sits in Washington: the US Treasury yield. Hotter-than-expected US inflation data, out on Wednesday evening (IST), brought back bets on another Federal Reserve rate hike. Meanwhile the 10-year Treasury yield held close to 5.2%, the level Indian strategists keep pointing to as the main reason foreign investors are selling Indian shares.

What happened: US CPI came in hot

US consumer prices rose 0.6% in September and 3.7% from a year earlier, up from 3.4% in August, the Bureau of Labor Statistics said, CNBC reported. Economists polled by Dow Jones had pencilled in an annual rate of 3.6%. Core CPI, which strips out food and energy, rose 0.3% in the month and 2.6% over the year, against forecasts of 0.2% and 2.5%. Gasoline alone jumped 9.1% and accounted for about half the monthly rise.

After the release, futures traders put the odds of a Fed hike at the October 27-28 meeting at about 54%, according to CME Group’s FedWatch tool as cited by CNBC. The Fed already raised rates in September, taking its benchmark to a 3.75%-4% target range.

US Treasury yield and India markets: the numbers that matter

Treasury yields spiked right after the data, CNBC reported, but the jump didn’t last. The US Treasury’s official daily par yield curve had the 10-year at 5.19% at Wednesday’s close, against 5.21% on October 13 and 5.31% on October 5. The Financial Express says US 10-year and 30-year yields are at their highest since 2002.

• FII selling: FIIs/FPIs sold a net ₹1,857.44 crore in the cash market on October 14, while DIIs bought a net ₹2,670.44 crore, NSE provisional data show. More in our FII DII data for October 14.
• October outflows: The Financial Express reported FIIs had pulled a net ₹41,486.99 crore out of the cash market in October up to its October 13 report, after a ₹45,536 crore net outflow in September.
• Indices: The Nifty 50 closed at 22,622.7 on October 14, down 0.44%, NSE data show. The Sensex ended at 72,782, ET Markets reported.
• Indian bonds: The benchmark 6.94% GS 2036 yielded 7.3618% on October 13, according to the RBI. On October 14 it touched 7.4112%, its highest since March 2023, Reuters reported via ETEnergyWorld.

Working from the October 13 closing figures (7.3618% for India, 5.21% for the US), we get a gap of about 2.15 percentage points between Indian and US 10-year yields.

Why a 5.2% US yield weighs on Indian equities

“From the FPI perspective, FPIs pulling money out of India is rational since the risk-free return from the 10-year US bonds is above 5.2%. So long as the US bond yields remain elevated, FPIs will continue to sell,” V K Vijayakumar, Chief Investment Strategist at Geojit Investments, told The Financial Express. Talking to ET Markets on Wednesday, he said the US 10-year yield near 5.2% and Brent crude near $106 “continue to be strong headwinds”, and that the rally would be hard to sustain. He did expect financials, telecom, metals and autos, which should post good Q2 numbers, to hold up.

India has started tightening too. On October 7 the RBI’s Monetary Policy Committee raised the repo rate by 25 basis points to 5.50% and shifted its stance to “calibrated tightening”, the MPC resolution shows. The RBI’s FBIL reference rate was ₹95.0317 per dollar at 1 pm on October 14.

What high US yields mean for Indian investors

While US yields stay this high, Indian stocks have to promise foreign investors more return to make the extra risk worthwhile. That keeps pressure on FPI-heavy large caps and on the rupee. And the hot CPI print makes a quick fall in US yields less likely before the Fed meets.

Next on the list are the US producer price index, due on Thursday per CNBC, and the daily FII flow data. Follow the day’s moves on our Stock Market Today India hub, and read how the dollar index weighs on emerging markets like India.