regular-article-logo Saturday, 10 June 2023

Rate hike fears jack up bond yields

Market is still worried about domestic inflation numbers and global issues such as Ukraine war adding to discomfort with growth projections, says Jayesh Faria

Our Special Correspondent Mumbai Published 28.02.23, 01:53 AM
Representational image.

Representational image. File picture

Yields on the benchmark 10-year bond jumped to more than a three-month high on Monday amid apprehensions of another rate hike by the Reserve Bank of India (RBI) even as the market awaited more supply of paper in state development loans and treasury bills.

A firm trend in US bond yields also impacted market sentiment.


Yields on the benchmark 7.26 per cent GS 2032 paper settled at 7.45 per cent, its highest since November compared with the previous close of 7.42 per cent.

The yield, which is inversely related to the prices, has risen nearly 15 basis points over the levels prevailing before February 8 when the central bank hiked the policy repo rate 25 basis points to 6.50 per cent.

Treasury circles said G-set prices were likely to remain firm as the unexpected rise in retail inflation during January has stoked fears the RBI may raise interest rates again in April to tame prices.

The spike in yields on Monday also came on account of the auction of state government securities of Rs 30,833 crore by 14 states on Tuesday.

Moreover, the central government will borrow Rs 39,000 crore through treasury bills over the rest of this fiscal year. Both these factors could see liquidity remaining tight in the system.

“India 10-year bond yield hit the level of 7.45 per cent which is the highest since November 22. This is an indication of nervousness in the market,” Jayesh Faria of Motilal Oswal Private Wealth said.

“In the last policy meeting, the monetary policy committee refrained from giving forward guidance and retained the optionality to be on either side based on incoming data to change their stance to neutral on interest rates.”

“The market is still worried about domestic inflation numbers and global issues such as the Ukraine war adding to discomfort with growth projections,’’ Faria said.

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