Mumbai: The bond yields erased early falls to close at 18-month high on Tuesday, on expectations the central bank would further tighten rates to check price pressures in Asia’s third-biggest economy.
The yield on the 10-year benchmark bond ended at 8.08%, its highest since 8 October 2008 and above Monday’s close of 8.03%. It touched the day’s low of 7.97% in early trade.
The market will be closed on Wednesday for a holiday.
Volumes were moderate at Rs63.80 billion ($1.4 billion) on the Reserve Bank of India’s trading platform. “Inflation is turning sentiment very nervous and chances of another rate hike is high,” said a private bank trader.
A Reuters poll showed wholesale price index probably rose 10.39% in March from a year earlier. This is higher than February’s 9.89%.
The data could determine how much the central bank will raise rates on 20 April, when it reviews policy.
The Reserve Bank of India (RBI) had unexpectedly hiked repo and reverse repo rates by 25 basis points each in March, citing intensifying inflationary pressures and steady economic recovery.
Yields fell earlier in the day tracking US Treasury yields, which eased on concerns about expected corporate earnings and a two-week break from government bond auctions.
Traders also watched for debt supplies later in the week.
The RBI will sell Rs130 billion of bonds on Thursday including Rs60 billion of 7.38% 2015 bond, Rs40 billion of 8.20% 2022 bond, and Rs30 billion of 8.28% 2032 bond.
The benchmark five-year interest rate swap ended steady at 6.99/7.02%.
In interest-rate futures on the National Stock Exchange, the June contract implied a yield of 8.2972%, from Monday’s 8.2893%.