MUMBAI: The Dalal Street mayhem, triggered by the worst 12.4 percent fall in the Japanese markets earlier in the day since the 1981 plunge, has had the Sensex and the Nifty tanking close to 3 percent on Monday, putting the rupee, which has been under pressure for almost a month now, into more pressure and sending it down the sensitive 84 marks intra-day. Massive intervention by the central bank might have salvaged the day for the currency helping it close at 83.84 to the US greenback, which still is the worst close for the rupee, losing 9 paise from the previous close.
The Japanese blood bath was triggered by unwinding of yen carry trade which is worth over $4 trillion worldwide. Carry trade means, investing the money borrowed from Japan with zero interest and reinvesting that money elsewhere including the US treasury, where the Japanese are the single biggest investors. The unwinding and frenetic sell-off began after the Bank of Japan in a surprise move increased the interest to 0.25 from the three decades of zero interest rates and indicated more rate hikes.
This led to panic selling in all asset classes across the world, including in the domestic markets. The rupee weakened to a fresh record low on Monday amid the unwinding of yen carry trades, following which all Asian equity markets tanked. Adding to this, the rise in Brent crude, following the escalation of tension in the Middle East, added to the demand for the greenback, while the decline in the dollar index limited the gains.
As a result the rupee weakened 9 paise to end at a record closing low of 83.84 after opening at 83.79 and plumbing below the sensitive 84. It had closed at 83.75 last Friday.
The blood bath in the equities and the whacked rupee has had its red marks all over the debt space too with the 10-year benchmark bonds yields gaining 1.03 percent to close 6.971, or adding 0.071 from the previous close.
The yields tested 6.962 to the upper side and 6.982 to the lower end but is still much better than the 52-week high of 7.395 and the low of 6.894. Given that the US market is likely to bleed for the third day today, the market participants are expecting more pressure on the rupee which may head towards under-84 tomorrow. Bond yields slid as investors rushed to safe haven assets and investors bet that the US will be required to cut interest rates sooner to spur growth.