A Rising Rates Cycle

A Rising Rates Cycle

The down trend line adjoining 1988 top has been broken out indicating big reversal in falling rate cycle. Since hitting an all-time of 15.84 percent in September 1981, the yield on the U.S. 10-year has been steadily declining. The US 10 year Treasury bond yield formed bottom at 1.3180 in July 06, 2016 and touched high of 2.9424 on February 15, 2018. The yield price almost doubled in last 1 ½ years, entering in a phase not seen in 72 years.

Historical analysis suggest that Interest rate cycles are longer, typically stretching 22 to 37 years. This new rate cycle could last at least two decades, introducing a whole new class of investors to rising rates. This meant a lot for all as rise in interest rate would directly or indirectly raise the cost of goods and services. This is might be the first sign of rising inflation on global front which will lead to change in sentiment/ behavior of global financial market. The people likely to reduce exposure in equity market and will move towards bond as real interest rates would be higher.

Hope Still Alive

The correlation between S&P 500 and US 10 year yield remains positive below 4% while concern rises once the yield starts moving above 4.50%. As bond market discounts four rate hikes for 2018, some experts believe the recent development would lead to end of bull market in equity market. With rising interest rate and unwinding of easy liquidities would impact emerging market (EM) equities. The foreign fund likely to move from EM to DM, as real interest would rise along with growth in economy attracts better valuation for their equity as well.

Morning Business News Round Up_Feb 22 , 2018

Morning Business News :

  • Q3 GDP growth seen at 6.5-7 pc: SBI study
  • Preserve liquidity to pick quality stocks on derivatives expiry day
  • EPFO reduces interest rate to 8.55% for 2017-18, its third straight cut
  • Bajaj Finserv, Grasim and Titan to be part of Nifty 50 index from April 2
  • TCS, Infy, HDFC help Sensex, Nifty end higher after three losing sessions
  • Stock exchanges try to assuage concerns after MSCI warning
  • BSE to launch cross-currency derivatives next week
  • Dollar hits one-week high as focus shifts to Fed; world stocks fall for 3rd day
  • RIL to acquire 5% in Eros International for Rs 1,000 cr

Image result for Eros International

  • NSE 500 cos’ performance too improves in December quarter
  • UP investors summit: RIL to invest Rs10,000 crore over next 3 years, says Mukesh Ambani
  • ONGC short-lists 3 US oil service majors to lift output from two fields
  • Wipro to set up Rs220 crore manufacturing unit in Telangana
  • Sun Pharma shares tank over 8%; biggest drag on Sensex, pharma index today
  • Rupee drops 15 paise, nears 65-mark against US dollar as Sensex trips from day’s high
  • Idea Cellular QIP: Birla group telco fixes issue price at Rs 82.5 to raise Rs 3,500 crore
  • Retail firms outdo market in terms of 10-year return