Expect bond sell-off to coincide with some pull back in US market: Ananth Narayan

US yields have soared to the highest levels in nearly 3 years as investors bet on an accelerating economy and inflation. German 5-year bunds broke above zero for the first time since December 2015. Back home, yields rose to a 2 year high after the Economic Survey hinted at “a pause in general government fiscal consolidation”.

In an interview with CNBC-TV18, Ananth Narayan, Market Expert shared his views and readings on the same.

We have never had a situation where both bond market and equity markets rally at the same time for a long period of time. At some state, the correlation does break down. We cannot have runaway asset prices in the US with inflation staying low and interest rates staying low forever. I suspect it will be a bit of both, bond sell-off and a stop in the US stock market action, he said.

According to him, the global growth outlook has been robust compared to expectations and given this kind of underlying growth, it is very difficult for interest rates to remain low forever, inflation will pick up at some stage.

Currency markets looking fragile. Further weakness on the dollar could trigger problems for the currency market, he added.

The comments of Arvind Subramanian, Chief Economic Advisor (CEA), on Reserve Bank of India’s (RBI) policy stance triggered bond sell-off yesterday, said Narayan.

Short-term borrowing rates have suddenly shot up, he said.

Speaking of oil, he mentioned that if oil moves to USD 80 per barrel then markets might factor in a rate hike from the RBI.moneycontrol