The yield on the US 10-year Treasury note stood around 4.35% this week, while the 30-year yield touched 4.98% — close to the 5% level that has rattled markets — even as US equities remained near record highs.
Seth said the gap between the two markets reflects three distinct pressures building simultaneously. “From the US bond market perspective, you’re going to go through the Fed tier change — that changes the gear in terms of the discussion from an FOMC perspective. The second is the oil inflation impulse. And the third is the whole fiscal discipline, or the fiscal financing requirements,” he said.
For the full interview, watch the accompanying video
He added that a rise in the term premium — the extra return investors demand to hold longer-dated debt — was compounding the problem. “Even though I don’t think the Fed goes on a hiking path, you’re not seeing the respite in the 10-to-30-year part of the curve, because of the oil price as well as the fiscal financing requirements. And I don’t think that’s going away in a hurry,” Seth said.
On the Indian rupee, Seth struck a more measured tone, arguing that the sharp currency moves seen in March following the outbreak of the US-Iran conflict have largely played out. He expects only a gradual drift lower from here if oil prices stay in the current range, rather than another leg down.
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“From a near-term knee-jerk reaction on the rupee, I think we’ve seen most of it. You can see a gradual decline, but not major moves in the rupee, if the oil stays in this range,” Seth said.
He acknowledged, however, that the broader economic consequences of sustained high oil prices — what he described as second- and third-level impacts — would take time to show up in the data.
Seth also weighed in on why foreign investors have stayed on the sidelines in India even as other markets rallied. He pointed to two factors: India’s limited role in the global AI infrastructure build-out, and starting valuations that were too high relative to earnings growth.
“It’s a combination of the AI link or the AI supply chain, where India is not really a big part of it, and the starting point of the valuations relative to the earnings growth,” he said.
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Over the past 18 months, Indian markets have underperformed relative to global peers, and Seth said that the correction has brought valuations to a more reasonable starting point. “I think it’s getting close to the point where it starts to look interesting, with or without AI,” he added.
He also flagged a medium-term opportunity that is not yet priced in: domestic AI adoption by Indian businesses. “Productivity enhancement and the AI adoption by businesses — that can be a real kicker down the road, as you see clearer adoption across a lot of different businesses. But right now it’s still in the early innings of the euphoria around infrastructure and hardware,” Seth said.
Looking ahead, Seth said two things were on his radar: the pace of geopolitical resolution in West Asia and the US non-farm payroll data due Friday. A stronger-than-expected jobs print, he warned, would likely force markets to push back any remaining expectations of a Federal Reserve rate cut.
“If we see stronger than expected, then I think the markets start to price out any kind of rate cut expectations from the US curve,” Seth said.
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