The Pandemic Isn’t India’s Only Curve to Flatten
Yield differentials look bad for a huge emerging market heading into a recession.
The yield curve needs to come out of lockdown, too.
Photographer: Yawar Nazir/Getty
The spread of the coronavirus in India is showing no sign of abatement. Unless it catches a lucky break, Asia’s No. 1 pandemic hotspot is still a month or more away from a peak in infections (currently above 165,000) despite a severe lockdown. Tricky as the situation is for the country’s patchy healthcare infrastructure, the disease won’t be India’s only curve to flatten.
The squiggly line that joins the cost of money at different maturities — the yield curve — deserves just as much attention. It’s unhealthy in an economy headed for a recession that 10-year funds cost nearly 5.75%, almost 275 basis points more than the three-month treasury bill yield. The central bank is slashing short-term rates and flooding banks with liquidity, and yet the long-term cost of capital is refusing to head lower.