Indian bond yields jump ahead of RBI policy decision, tracking higher US peers

MUMBAI: Indian government bond yields surged on Monday, the beginning of a week marked by the central bank’s policy decision, tracking US yields as strong economic data raised fears of another rate hike by the Federal Reserve

Major focus, however, remains on the Reserve Bank of India’s (RBI) monetary policy decision due on Wednesday.

The benchmark 10-year yield ended at 7.3197%, after closing at 7.2776% on Friday.

The yield dropped 11 (bps) last week, its biggest move since the week ended Nov. 11.

The new 10-year 7.26% 2033 yield ended at 7.2799%, from 7.2415% at previous close.

“We expect the policy rates to be increased by 25 bps on Wednesday and the monetary policy stance to change to neutral,” said Puneet Pal, head of fixed income at PGIM India Mutual Fund.

“The 10-year benchmark bond yield will trade in the 7.10%-7.40% range till the fiscal year-end. The current yields present a good opportunity to invest in fixed income across the curve from a long-term perspective as we expect the RBI to start cutting rates from next year.”

The RBI will likely raise its key interest rate by 25 bps to 6.50% at its meeting before leaving it at that level for the rest of the year, a Reuters poll of economists found.

The forecast is unchanged from a poll last month, with predictions for a slowdown in GDP growth to 6.0% in the financial year 2023/24 from an expected 6.7% this year.

Bond yields jumped after US Treasury prices fell as data showed job growth surged and services activity rebounded in January, likely undermining the Fed’s attempts to bring down inflation.

The 10-year US yield climbed 13 bps on Friday and was last at 3.59%, as the market factored in another 50 bps rate hike by the Fed.

Non-farm payrolls surged by 517,000 jobs last month, while the non-manufacturing PMI increased to 55.2.