The news that inflation fell to an eight-year low at the end of May is unlikely to nudge RBI towards an interest rate cut. Besides the fact that inflation continues to be a threat to the Indian economy, there is a growing consensus among traders and economists that global inflation is likely to spike in the coming months. That is the main reason why there was a rout in the bond markets in the US and Europe last week. The yield on US treasuries jumped to a multi-year high of 5.21% as investors sold bonds in a hurry. The biggest bull in the US bond market, Bill Gross of investment firm Pimco, says he is now bearish on bonds.
Indian investors rarely pay too much attention to bond markets, compared to their keen interest in global stocks. This is unfortunate. The sell-off in the Western bond markets shows that risk is being repriced. Also, equities often tumble with bonds. Both could affect global interest in Indian equities. So, watch what happens to global bonds.