MUMBAI: Indian government bonds resumed trading with a gap opening in yields on Thursday, as a consistent rise in US peers and a shock jump in local retail inflation raised bearish bets.
The benchmark 7.26% 2033 bond yield was at 7.2550% as of 9:45 a.m. IST, after ending the previous session at 7.2034%.
Earlier in the day, the yield hit 7.2579%, its highest since April 6.
“As expected, bond yields have jumped with benchmark around the critical levels of 7.25%, but it should consolidate around these levels,” a trader with a private bank said.
“It is also because of a bunched up reaction.” India’s fixed income markets were closed on Tuesday and Wednesday.
US yields kept climbing especially after minutes from the Federal Reserve’s July meeting showed officials divided over the need for more interest rate hikes, though “most” policymakers continued to prioritise inflation battle.
The Fed raised rate by 25 basis points in July to 5.25%-5.50% range, and even though market is not expecting another hike, consensus indicates rates staying elevated longer, driving a sustained uptick in US yields.
The 10-year yield hit 4.2980%, the highest in nearly 10 months, with the two-year yield trending near the crucial 5.00% mark.
Back home, July retail inflation spiked to 7.44% from 4.87% in the previous month as vegetable and cereals prices skyrocketed, beating expectations of 6.40% in a Reuters poll.
Rising US yields pull Indian peers higher; debt sale major trigger
The July figure was the highest since April 2022 and breached the upper end of the Reserve Bank of India’s inflation band for the first time in five months, which could prompt the central bank to turn more hawkish.
India will take a medium-term view to intensify efforts to ease inflation pressures and avoid any knee-jerk reaction to transitory price increases, finance secretary T V Somanathan told Business Standard on Thursday.
Meanwhile, traders are eyeing the debt supply as New Delhi aims to raise 310 billion rupees ($3.73 billion) through a bond sale on Friday.