Yield nerves

In a bid to clean up election funding, the government had in January introduced electoral bonds that can be bought from specified branches of State Bank of India and used to donate money to political parties. Photo: iStockphoto

1 min read . Updated: 17 Mar 2021, 11:12 PM IST Livemint

Higher US yields that draw money away will hurt our equities far more than our economy, unless a big dollar crisis erupts of an entirely new kind, which is a low but significant likelihood

S&P Global Ratings on Wednesday warned that the Philippines and India are the most vulnerable to rising yields on US Treasury bonds, amid global fears that President Joe Biden’s $1.9 trillion stimulus will spark inflation and prompt the Federal Reserve to tighten money. This, some worry, will set off 2013-like capital outflows from emerging markets.

While such an eventuality can’t be ruled out, India is now better placed to withstand such a flight than it was during the last ‘taper tantrum’. Our macro-economic conditions are more or less stable. Inflation is moderate, if flickery, and our foreign exchange reserves are at a record high. Higher US yields that draw money away will hurt our equities far more than our economy, unless a big dollar crisis erupts of an entirely new kind, which is a low but significant likelihood.