The return from the US carry trade will be limited in the medium term, while returns of EM currency carry will turn lucrative. This may bolster bets on Indian equities.
Synopsis
The spread reached a high of 236 bps in December 2022. Historically, spreads in excess of 200 bps yield negative returns in the medium term. A lower spread between the earnings yield and bond yields suggest investment in equities will be beneficial.
ET Intelligence Group; Returns from equities are likely to be robust in the near term as the yield gap between stocks and bonds narrows. Spread of earnings yield (the inverse of P/E) and bond yield – a measure of relative attractiveness of equities over bonds – has gravitated to a five-year average level of 159 basis points, data from Bloomberg showed.The spread reached a high of 236 bps in December 2022. Historically, spreads in excess of 200
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