The deepening tension in West Asia has given sleepless nights to the financial markets all over the world. Its biggest impact is being seen in the form of a huge rise in American treasury yields. The yield on the 10-year benchmark Treasury bond in the US recently crossed the 4.6 percent mark, which is the highest level in almost a year. However, now it has softened a bit and has slipped below 4.6 percent. This global turmoil has also worried the Indian markets. It is very important for the common man to understand how this turmoil crossing the seven seas can have a direct impact on his daily life, from the inflation rate to the loan installments (EMIs) to be deducted every month.
What happened in America that shook the markets around the world?
There are many important factors hidden behind this entire crisis. The biggest concern is the persistently high level of inflation in America. Along with this, the ongoing geopolitical conflict in West Asia has added fuel to the fire. Since the start of the US-Iran war, there has been a huge jump of about 50 percent in the prices of crude oil. Currently, crude oil is trading above $100 per barrel. Due to oil becoming expensive, investors are afraid that the US Federal Reserve will keep interest rates at a higher level for a long time. Apart from this, in view of the increasing debt of the US government, the rating agency Moody’s had reduced the sovereign credit rating of America from Aaa to Aa1 in 2023 itself. Due to this decline, investors are demanding more profits on long-term bonds.
Rupee weakened against dollar
There is a simple rule of economics that whenever US bond yields rise, investors around the world move their money out of emerging markets like India and start investing in American assets considered safe. Due to this capital flight the dollar continues to strengthen. As a result, the Indian rupee comes under heavy pressure. So far this year, the rupee has fallen by more than 7 percent. At present it has reached the historical low of 97 against the dollar. Seeing the seriousness of the situation, the Reserve Bank of India (RBI) immediately took charge. The central bank has started selling dollars on a large scale to maintain liquidity in the currency market. Apart from this, a ‘Dollar-Rupee Buy-Sell Swap’ auction of $5 billion has been announced, whose duration will be three years. Experts believe that this will remove the cash crisis in the banking system.
EMI cost will increase with expensive home loan
Bond prices always have an inverse relationship with their yields. Even if the Reserve Bank keeps its benchmark repo rate stable, if the yield of 10-year bonds goes up in the market, it becomes expensive for banks to raise money from the market. The rising cost of raising funds for banks means that this burden will ultimately be passed on to common customers. In such a situation, everything from home loan, car loan to personal loan will become expensive for you. Due to increase in interest rates, it is almost certain that your monthly installment i.e. EMI burden will increase.
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