Rising bond yield could alter risk-reward play, scupper stock market rally

The "risk-free" yield on 10-yr g-sec is a threshold for investors. If its softens, investors get into riskier assets like equities. If it hardens, they settle for attractive risk-free rate on offer

Rising yields on the 10-year government security (G-sec) could be speed-breaker for the current stock market rally, given it would alter the risk-reward equation.

In recent weeks, yield on the 10-year G-sec has risen as much as 40 bps to trade above the 6-per cent mark.

The ‘risk-free’ yield on the benchmark government security often acts as a threshold for investors to take risks. If the yields soften, investors are lured into investing in riskier assets like equities, while if the yields harden, the appetite diminishes and investors settle for the attractive risk-free rate (RF) on offer.

Stimulus measures by global central banks