Indian 10-Year Bond Yield Hits Two-and-a-Half Year High
The yield on India's 10-year benchmark bond has breached a significant threshold of 7.20%, closing at its highest level in two and a half years at 7.21%. This marks a significant milestone for the bond market, which is expected to continue trending upwards due to high crude oil prices and anticipation of a central bank rate hike next week.
The current yield on the 10-year bond has been influenced by its US counterpart, which stands at 5.33% - its highest level since 2002. The domestic bond market will remain closed on Friday for Gandhi Jayanti, while the central bank is set to announce its rate decision next week, with expectations of a 25 basis points increase in interest rates to 5.50%.
Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, believes that yields will likely inch up further if there is a 25 bps hike, and may see a relief rally if the RBI hikes by 50 bps. He predicts that benchmark yields could touch a peak of 7.50% in this cycle.
The government sold debt worth ₹33,000 crore on Thursday, while state governments are expected to sell bonds worth ₹3.3 lakh crore to ₹3.5 lakh crore next week. This increased supply could potentially weaken the supply-demand dynamics, with traders warning that yields may retrace from 7.25% due to emerging buying interest.