Bond yields, US air strike: What dragged the Sensex 1,939 pts lower today

A rise in commodity prices has fanned inflation risks, pushing bond yields higher. That apart, the US launched airstrikes in Syria on Thursday, which further dented global mood

Bears tightened their grip on the markets on Friday amid a global equity market rout. Benchmark indices tumbled over 4 per cent in the intra-day trade with the S&P BSE Sensex sinking over 2,149 points while the Nifty50 tumbled over 629 points.

The indices ended near the lowest point of the day, at 49,100 and 14,529 levels, respectively, down 1,939 points and 568 points or 3.8 per cent.

A rise in commodity prices has fanned inflation risks, pushing bond yields higher. That apart, reports that the United States launched airstrikes in Syria on Thursday, targeting facilities near the Iraqi border further dented global mood.

Going forward, analysts expect the markets to consolidate after a sharp run since March in the backdrop of near-term headwinds.

Here’s what triggered Friday's sell off:

Rise in bond yields: US Treasury yields vaulted to their highest in a year on expectations of a strong economic expansion and related inflation. Back home, the 10-year government bond yield jumped to 6.18 per cent on Thursday, February 25.

Acuit Ratings now expects the 10-year sovereign yields to rise to 6.40 per cent by March 2022 given that the Reserve Bank of India may hike repo rate by 25 bps going forward given the likely rate and liquidity normalisation expected next fiscal.

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US air strike: The United States launched airstrikes in Syria on Thursday, targeting facilities near the Iraqi border used by Iranian-backed militia groups, CNN reported. The Pentagon said the strikes were retaliation for a rocket attack in Iraq earlier this month that killed one civilian contractor and wounded a US service member and other coalition troops.

The airstrike was the first military action undertaken by the Biden administration, which in its first weeks has emphasized its intent to put more focus on the challenges posed by China, even as Mideast threats persist.

Asia markets: Asian stocks opened sharply lower on Friday after Wall Street's main indexes tumbled, with technology-related stocks under pressure following a steep rise in benchmark US Treasury yields.

Australia's S&P/ASX 200 fell 2 per cent in early trade, on track for the biggest intraday percentage loss since January 28. Japan's Nikkei 225 was down 1.8 per cent while Hong Kong's Hang Seng index futures lost 1.69 per cent.

Rise in Brent crude price: Despite the drop in prices on Friday, both Brent and WTI are on track for gains of about 20 per cent this month, as markets have grappled with supply disruptions in the United States, while optimism has built for demand to improve with vaccine rollouts.

ALSO READ | Rising bond yields, commodity prices to cap market upside, say analysts

According to a recent report by BofA Securities, 31 Nifty50 companies, or 46 per cent of free-float weighted Nifty market-cap, are exposed to commodity-related risks and cautions that the full impact of the rise in commodity prices is yet to play out. READ ABOUT IT HERE 

Q3 GDP data: Investors also turned cautious ahead of the release of the gross domestic product data, to be released later in the day. Market participants would track whether the economy continued to be in recession in the third quarter of FY21 or it ended with the second quarter only. Economists have divergent views on it. Some believe GDP may have contracted as high as up to 2 per cent in the quarter ended December 31, 2020. Still others say the economy may have grown up to 1.8 per cent in the quarter.  READ MORE

Sell-off in heavyweights: Blue-chip stocks such as HDFC, HDFC Bank, ICICI Bank, Reliance Industries, Axis Bank, Tata Consultancy Services, Bajaj Finance, SBI, and Infosys skid between 1.5 per cent and 3.5 per cent on the BSE and dragged the Sensex by 780 points.