Comparative Beta Sensitivity of India and US

25 March, 2023

Beta of India 10y to the U.S. 10y has been on the decline for the last 5 years. It decreased from 1.09 in 2018 to 0.10 in 2023, demonstrating the significant decrease in spillovers from volatility in the U.S. rates and establishing the low risk that Indian bondholders face in comparison to those in the United States.

The FED embarked on a quantitative tightening spree, increasing interest rates from nearly 0% to 4.75% over the course of a year, which is why the banking sector is currently in chaos as a consequence of the collapse of SVB and Signature Bank. This financial pandemonium was primarily caused by a sharp rise in interest rates and the U.S. banks' incapacity to manage high beta bonds because of the enormous MTM losses on their books. Yet, given the reduced beta of these bonds and its capacity to manage severe volatility during periods of contemporary economic crisis, India is in a far better position to handle such situations.