Global equity markets, including India, are facing a significant near-term risk of correction as US Treasury yields continue to climb, with experts warning that a breach of the 5 per cent mark on the 10-year yield could trigger a major downturn.
Photograph: Brendan McDermid/Reuters
Key Points
- A move above 5 per cent on the US 10-year Treasury yield is likely to trigger a stock market correction globally, according to Jefferies’ Christopher Wood.
- Rising yields are driven by heightened inflation concerns, geopolitical tensions, and record corporate debt issuance for AI infrastructure.
- The US government’s bond-buying programme is seen as a temporary fix, failing to address underlying fiscal deterioration and competition for buyers.
- Nominal GDP growth significantly exceeding the 10-year Treasury yield signals that yields are set to move higher.
- Indian markets face a weak near-term technical outlook, with 23,800 identified as a critical Nifty downside level to monitor.
Higher Treasury yields pose a near-term risk to equities, with a move above 5 per cent on the 10-year yield likely to trigger a stock market correction, according to Christopher Wood, global head of equity strategy at Jefferies.
“If foreigners have the potential to sell a lot of Treasuries, they also have the potential to sell a lot of US equities.
“For now, foreigners own US equities because of the hot artificial intelligence (AI) story which, to be fair, has continued to deliver handsomely in terms of returns, most particularly for those invested in the picks and shovels plays.
“However, the opposite is the case with US Treasury bonds that have been in a brutal bear market since March 2020,” Wood said in his weekly note to investors, “GREED & fear”.
The US two-year treasury yield climbed 5 basis points to 4.41 per cent, while the 10-year issue rose 3 bps to 4.81 per cent on Wednesday, up from 3.8 per cent on February 27.
This is despite the US government’s efforts to soothe nerves through a bond buying programme.
Drivers of Rising Yields
Analysts said the rise in yields was driven by heightened inflation concerns as investors positioned ahead of this week’s US labour-market data, while renewed geopolitical tensions in West Asia pushed crude oil prices higher and raised expectations that interest rates could remain elevated.
The rate on 10-year Japanese government notes climbed higher to hit 3 per cent for the first time since 1996, while 30-year yields issued by the United Kingdom reached the highest since 1998.
The US 10-year Treasury rate hit levels last seen in January 2025.
Corporate America is issuing debt at a record pace to fund the AI build-out, with borrowing linked to data centre expansion now running into “hundreds of billions of dollars”, said Nigel Green, chief executive officer of deVere Group.
“Government and corporate borrowers are increasingly competing for the same pool of buyers at the same time, and that competition is a real part of why investors are demanding more compensation to hold long-dated paper.
“The US government’s intervention to halt pressure on its Treasury is a temporary fix that doesn’t address the real and intensifying issues,” he said.
Fiscal Deterioration and Market Impact
The fiscal deterioration in the US is putting “upward pressure” on long-term Treasury bond yields as is the related fact that nominal gross domestic product (GDP) growth has been at a trend rate of 5.9 per cent year-on-year in the past 12 quarters, Wood said.
“Nominal GDP growth running well above the level of the 10-year Treasury yield is a sure signal that yields should move higher,” Wood believes.
Rising bond yields globally, especially in the US, are a key risk for global stock markets, including India, said V K Vijayakumar, chief investment strategist, Geojit Investments.
“If the 10-year yield touches 5 per cent, it has the potential to trigger a ‘big correction’ in equity markets globally.
“This is the macro indicator investors need to watch closely,” he said.
The near-term technical outlook for the Indian markets has turned weak, with 23,800 as the key Nifty downside level to watch, according to Ponmudi R, CEO of Enrich Money.
“24,000 and 24,200 remain the key levels the Nifty needs to reclaim to improve the near-term outlook,” Ponmudi said.
