MUMBAI: Indian government bond yields started the week higher, as they rose for second straight session on Monday, tracking similar movement in U.S. peers last week.
The 10-year benchmark 7.26% 2033 bond yield ended at 7.0488%, after closing at 7.0140% on Thursday. Indian government bond markets were closed on Friday for a local holiday.
U.S. yields rose on Friday after stronger economic data showed that the U.S. Federal Reserve will have to hike interest rates to control inflation.
The 10-year U.S. bond yield rose by nearly 10 basis points (bps) and was last at 3.4654%. The upward move in longer-dated U.S. Treasury yields marked a reversal in course seen in the prior week, when investors bet that the Fed would start cutting rates from next quarter.
Domestic benchmark bond yield had briefly moved below the key 7%-mark last week after the U.S. central bank hinted at a pause following a widely-expected 25 bps rate hike.
However, traders expect profit booking, and do not foresee a repeat of this move in the near term.
“With some clarity on the Federal Reserve’s policy outlook, any sharp movement in bond yields is unlikely,” said Ajay Manglunia, managing director and head of investment grade group at JM Financial.
“The RBI rate cuts are still some time away so there is no strong cue immediately for the 10-year benchmark to sustain below 7% in the near term.”
While the Fed has signalled a pause in its tightening cycle, any tilt towards hawkishness could influence the Reserve Bank of India’s (RBI) policy outlook.
The RBI had surprised the markets with a status quo on rates in April, raising the bets of a prolonged pause.
Traders will also focus on U.S. retail inflation data due on Wednesday and Indian retail inflation data due on Friday.
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