India VIX spikes 3% as bond rout sparks sell-off, market breadth in favour of bears

Overnight, Wall Street settled in the deep red.

Fear and nervousness in the domestic equity markets soared in trade on Thursday, May 22, after investors dumped their equity holdings as shockwaves in the bond markets roiled global stock markets.

At 9.35 am, the India VIX index, which measures expected volatility in markets based on options trading, jumped to 18.04, higher by 2.8 percent, indicating rising caution in investors' sentiment.

The Sensex was down 767.50 points or 0.94 percent at 80,829.13, and the Nifty was down 230.85 points or 0.93 percent at 24,582.60.

Further, the market sentiment was slightly tilted towards the bears, as about 1,251 shares advanced, 1,523 shares declined, and 158 shares were unchanged.

Global bond yields have been on a steady uptick, with the U.S. 30-year yields surging past the 5 percent mark, while Japan’s 40-year yield has touched 3.5 percent.

The losses came as Trump’s sweeping tax and spending bill is passing through the U.S. Congress, which could significantly widen the federal deficit. Further, the U.S. Federal Reserve has remained steadfast, refusing to trim the interest rate amid inflationary concerns, which means the U.S. will pay lofty prices to service its debt. As a result, investors offloaded their bond holdings, causing yields to spike.

"There is slight risk off in global markets. This is evident from the strength in alternate assets like gold and Bitcoin. The fundamental issue is the high fiscal deficit of the US which the market feels is unsustainable. Rising US bond yields are usually negative for emerging markets," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.

He added, "But the situation is slightly different now. The root cause of the problem is the unsustainable US fiscal deficit and debt. This may trigger some capital flows away from the US to other economies where prospects for growth and earnings are better."

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