Mumbai: Indian federal bond yields climbed to a one-year high on Friday, as hawkish comments by the RBI and rate increases elsewhere in the region heightened concerns of a policy tightening.
With inflation expected to accelerate, analysts fear that demand for debt at a 100-billion-rupee auction later in the day will be affected.
At 0904 hrs, the 10-year benchmark bond yield was at 8.24%, its highest since late-June 2007, according to Reuters data and nine basis points above Thursday’s close of 8.19%.
Bond yield has gained 14 basis points this week, after rising for a fourth day in a row. In May, the yield had risen 18 basis points. Total volume was a thin 950 million rupees with the 10-year bond being the only traded.
“There are no convincing reasons to buy bonds currently and there are more reasons to trim your existing positions given all the talk on inflation and rate expectations,” said Rahul Pal, a fund manager at Sundaram BNP Paribas.
Reserve Bank of India Governor Yaga Venugopal Reddy said on Thursday the central bank was ready to take recourse to its full range of instruments to anchor inflationary expectations.
Indonesia and the Philippines raised interest rates by 25 basis points on Thursday and the European Central Bank president Jean-Claude Trichet hinted at a possible rate increase by the ECB in the second half of the year.
DBS expects RBI to raise interest rates by 25 basis points in this quarter and another quarter point in the next quarter.