Indian equities fell sharply on Thursday as a global bond selloff pushed US Treasury yields to multi-year highs, while a stronger dollar, higher oil prices and renewed geopolitical uncertainty weighed on investor sentiment.
The Nifty 50 fell 216.50 points, or 0.92%, to 23,230.30, while the Sensex dropped 667.51 points, or 0.89%, to 74,160.74. The decline came after Wall Street ended lower and Asian markets came under pressure as rising US Treasury yields increased concerns that interest rates could remain higher for longer.
Three factors are weighing on markets: a sharp rise in US Treasury yields, weaker global risk sentiment amid geopolitical and trade uncertainty, and growing expectations of further US Federal Reserve rate hikes.
Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay
Treasury Yields
A global selloff in government bonds intensified after stronger-than-expected US economic data and weak demand at a US Treasury auction pushed yields higher.
The US 10-year Treasury yield rose more than 13 basis points to 5.104% and reached its highest level since July 2007. It had risen 15 basis points on Wednesday, marking its biggest one-day increase since the market turmoil triggered by US President Donald Trump's April 2025 tariff announcement.
The five-year Treasury yield also moved above 5% for the first time since 2007 after weak demand at an auction of $70 billion of five-year notes.
The move in US yields spread to other bond markets. Japanese bond yields rose alongside US Treasury yields, while borrowing costs also increased in Australia, New Zealand and emerging markets.
"The sell-off was driven by rebounding oil prices, stronger-than-expected US PMI data, and weak demand at a US$70 billion 5-year Treasury auction, which pushed 5-year yields above 5%," UOB said in a note.
The 30-year US Treasury yield gained more than nine basis points to 5.398%, its highest level since June 2007. The two-year yield, which is more sensitive to expectations for Federal Reserve policy, rose more than 11 basis points to 4.889%, its highest level since May 2024.
Global Risk
The rise in bond yields was accompanied by a stronger dollar, adding pressure on emerging-market assets.
A Bloomberg gauge of the dollar hovered around levels last seen in July as traders increased their expectations of further Federal Reserve rate hikes.
The prospect of higher energy costs alongside a still-strong US economy has added to pressure on the bond market. Brent crude pared some of its gains on Thursday but remained around $102 a barrel after rising sharply on Wednesday.
Stocks saw limited relief from the retreat in oil prices as investors also assessed renewed uncertainty around the US-Iran conflict.
Markets are also watching the scheduled meeting between US President Donald Trump and Chinese President Xi Jinping for developments related to trade and technology.
The selloff on Wall Street also spread to Asia-Pacific markets, with stocks and bonds coming under pressure across the region.
Fed Hike Bets
Expectations of another US Federal Reserve rate increase have risen after the jump in Treasury yields.
The move followed stronger-than-expected surveys of US economic activity, particularly in manufacturing, as well as comments from Federal Reserve Governor Michael Barr.
"In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion," Barr said.
He added that the Federal Reserve wanted to support "sustainable, durable growth" and maximum employment, while maintaining price stability.
Markets increased their bets on another quarter-point Fed rate increase in October after Barr's comments. The odds rose to 66.4% on Wednesday from 55% a day earlier, according to the CME Group's FedWatch tool. The probability was below 10% a month ago.
The combination of higher US yields, a stronger dollar, elevated oil prices and increased expectations of further rate increases has added to pressure on Indian equities, with the Nifty 50 and Sensex extending their declines on Thursday.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
