Global bond yields are soaring to multi-year highs, but analysts remain divided on whether the Sensex and Nifty could face a sharp crash if the benchmark 10-year US Treasury yield crosses 5%, a level that now appears within reach.

The 10-year US Treasury yield rose to a near three-year high of 4.81%, as a global bond selloff intensified. The Middle East conflict has pushed energy prices higher, stoking inflation concerns and fears over ballooning government debt. Japan’s 10-year yield also surged above 3%, its highest in 30 years, while Australia’s climbed to 5.198%, a more than 15-year high. Bond yields move inversely to bond prices.

Indian 10-year bond yields also joined the rally, briefly topping 7% for the first time in three months on Wednesday as a deepening global debt selloff and a fresh spike in oil prices rattled investors. Rising bond yields typically make the debt market more attractive to investors, which often leads to some downturn in the equity market.

The Indian stock market already sharply plunged on Wednesday amid the global bond selloff and rising yields. Sensex crashed nearly 750 points and Nifty plunged below 23,850 as soaring bond yields, coupled with escalating US-Iran tensions and rising oil prices spooked investors.

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Are Sensex and Nifty heading towards a big crash?

The rising bond yields in the US are a big threat to the Indian stock market, according to V K Vijayakumar, Chief Investment Strategist at Geojit Investments. He noted that the macro construct in the US indicates further hardening of the bond yields. “If the 10-year yield touches 5% that has the potential to trigger a big correction in equity markets globally. Therefore, this is the macro indicator to watch closely,” he said.

Investors at this point should treat the 5% level as the reality rather than a hypothesis, because the US 10-year is already at 4.81% and the market is trading the last 19 basis points in advance, said Harshal Dasani, Business Head at INVasset PMS. He added that transmission into Indian equities runs through the multiple, not through earnings.

A sustained rise in crude could put further pressure on the rupee, while higher bond yields in developed markets could make emerging-market assets relatively less attractive and potentially lead to capital outflows, said Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities.

Why Indian stock market may remain resilient

However, some analysts do not feel the soaring bond yields would lead to a massive crash on Dalal Street. Uttam Kumar Srimal, Deputy Head of Fundamental Research at Axis Direct said that although higher bond yields are negative for emerging market flows, including India, he does not see a large correction, as economic growth remains robust as indicated by Q1 FY27 GDP growth.

Nifty is also trading near its historical valuation of 18x, indicating valuation is not stretched, he said. “Even if the market corrects towards 23,000 Nifty, we would advise accumulating quality stocks at lower levels,” the analyst added.

Harshal Dasani from INVasset PMS also noted that a higher global risk-free rate compresses the price-to-earnings ratio that any equity market can defend. It does not reduce what Indian companies earn. So the correct expectation is compression concentrated in the longest-duration, most expensive pockets, richly priced consumer names, new-age technology and the stretched end of small and midcaps, while reasonably valued domestic cash generators absorb it better, according to the analyst. “That is a rotation and a valuation reset, not a crash, and the distinction is the whole answer,” he added.

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