Active Stocks
Tue Sep 26 2023 15:58:49
  1. Tata Steel share price
  2. 128.85 1.18%
  1. Tata Motors share price
  2. 619.75 0.19%
  1. HDFC Bank share price
  2. 1,537.65 0.39%
  1. State Bank Of India share price
  2. 594.3 0.03%
  1. ITC share price
  2. 442.4 -0.05%
Business News/ Markets / Commodities/  India's 10-year bond jumps highest in 3-months. Where is this treasury yield headed?

India's 10-year treasury yield clocked the highest single-session rise in three months after the Reserve Bank of India (RBI) hiked the repo rate by 50 basis points on Friday. This would be the third consecutive hike by RBI to tame inflation which is above its comfort zone for the sixth straight month. Other bonds have picked up as well. Markets welcomed RBI's rate hike move including a rise in bond yields. However, going forward, bond markets are likely to focus on incremental g-sec supply and take cues from global bond yields.

On Friday, the 10-year yield rose to 7.3% post the policy announcement against the previous day's level of 7.157%.

As per the Trading Economics website, India's 3-year yield rose to 6.90%, while the 2-year treasury yield climbed to 6.64%. The 5-year bond yields jumped to 7.03% on August 5.

On the latest performance, Vinod Nair, Head of Research at Geojit Financial Services said, "Despite the rate hike being on the higher side of the expectations, the market welcomed the RBI's move of 50 basis hike with rising bond yields. Even though metals prices are softening, RBI decided to keep FY23 inflation targets unchanged at 6.7%, which is above the tolerance level. However, given that Q3 and Q4 inflation is anticipated to be between 4% and 4.1%, the market is hopeful for the future."

In August policy, RBI increased its policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points to 5.40% with immediate effect. Meanwhile, the standing deposit facility (SDF) rate stands adjusted to 5.15%, and the marginal standing facility (MSF) rate and the Bank Rate to 5.65%.

Also, the six-member MPC decided to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.

Where is India's bond yields head?

Abheek Barua, Chief Economist, and Executive Vice President, HDFC Bank said, "The bond market rally seen over the last few days is likely to reverse and we expect the 10-year paper to trade closer to 7.3-7.4% by the end of the quarter as markets reprice in RBI action and the supply of both SDL and central government bonds this year."

Churchil Bhatt, Executive Vice President, Debt Investments, at Kotak Mahindra Life Insurance Company said, “Despite the recent moderation in global commodity prices, MPC has retained its FY23 inflation projection at 6.7%. Expressing confidence in India’s macro stability, the governor alleviated fears around Rupee volatility. Going forward, the MPC assured markets of its ability to deliver a soft landing for the economy, while keeping inflationary pressures at bay."

"Given the global recessionary backdrop and its accompanying disinflationary impact, we believe policy rates in India will peak tad below 6% in this calendar year. In light of the same, further rate actions will be more calibrated and data-dependent. Yield on benchmark 10-year Government Bond is expected to remain in 7.10-7.40 band in the near term," Bhatt added.

According to Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company, bond markets would now focus on incremental g-sec supply and take cues from global bond yields going forward. Staggered investment approach in fixed income stays".

"Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!" Click here!

Catch all the Commodity News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Updated: 05 Aug 2022, 07:38 PM IST
Next Story
Recommended For You

Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

Let’s get started
Switch to the Mint app for fast and personalized news - Get App