MUMBAI: Indian government bond yields trended higher on Thursday, with the benchmark bond yield heading towards the critical 7.20% level on a consistent rise in US yields.
Local factors such as the rupee’s sharp decline and worries over elevated domestic inflation further pinched.
The benchmark 7.26% 2033 bond yield was at 7.1783% as of 10:00 a.m.
IST, after ending the previous session at 7.1516%. It had hit 7.1871% earlier in the session, the highest since April 21. “Globally as well as locally, all the factors are favouring the bears for the time being.
Any material downside is unlikely for today and tomorrow,“ a trader with a primary dealership said. US yields continued their upward climb after strong private employment data, which underlines strength in the economy, and an announcement about the refunding of the government’s maturing debt.
The 10-year US Treasury yield hit 4.1260% on Wednesday, its highest level in nine months, as data showed 324,000 private sector jobs were added in July.
The report also showed a 6.2% rise on-year in annual private sector pay.
Even though the data did little to move the needle towards an additional rate hike, traders were further convinced that rates may remain elevated for longer.
Indian bond yields rise as 10-year US yield stays above 4%
Back home, the Indian rupee dropped to its lowest level in nearly a month, as risk aversion rose on the strengthening dollar and a selloff in US equities.
Worries that retail inflation may jump again in the near term were also keeping investors at bay, as it could force the Reserve Bank of India (RBI) to adopt a hawkish stance next week.
India’s retail inflation jumped to 4.81% in June after easing for four months. Some economists expect a reading of around 6.5% for July.
Traders will also await debt supply on Friday, as New Delhi aims to raise at least 390 billion Indian rupees ($4.72 billion) through the sale of bonds.
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