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10-Year Government bond yield hits two-month high on global trends

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The yield on the benchmark 10-year government bond surged to a two-month high on Monday, reaching 7.15 percent, tracking the upward movement in US Treasury yields. This rise marked an increase from the previous Friday’s yield of 7.12 percent. Throughout April, the yield on the 10-year benchmark government bond has witnessed a hardening trend, rising by 10 basis points (bps).

Market experts attribute this increase in yields to the global trend of rising rates, particularly in the US. Naveen Singh, Vice President of ICICI Securities Primary Dealership, noted that India cannot remain an outlier amid the global trend of rising yields. He anticipates that the benchmark yield might stabilize around current levels, awaiting further cues from the Consumer Price Index (CPI) data.

Interestingly, a newly auctioned 10-year government bond, introduced for the first time on Friday, swiftly emerged as the second most traded bond, following the benchmark bond closely. Market participants foresee the possibility of this new bond ascending to benchmark status after its subsequent issuance. The government auctioned bonds worth Rs 20,000 crore, with a coupon rate set at 7.10 percent.

Vikas Goel, Managing Director and CEO of PNB Gilts, highlighted that the issuance size of the new 10-year bond suggests its potential to become the benchmark after the second issuance, especially amidst prevailing negative market sentiment.

Further bolstering bond yields on Monday was the rise in overnight interest swap (OIS) rates. The 5-year OIS rate surged by 10 bps, while the 1-year OIS rate increased by 5 bps.

The surge in US Treasury yields was fueled by speculation that the US Federal Reserve might delay rate cuts this year. Strong economic data from the US, including manufacturing and employment figures, reduced the likelihood of rate cuts in June, as indicated by the CME’s FedWatch Tool. Consequently, the yield on the 10-year US Treasury note rose to 4.45 percent by the end of Monday’s trading session.

With a keen eye on further developments, market participants await the US Consumer Price Index (CPI) data later in the week for insights into the future rate trajectory. Meanwhile, domestic inflation in India is expected to moderate, as projected by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) in its recent forecasts for the current financial year.

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