Yields on Indian government bonds rise on inflation, interest rate hike concerns

23 Aug 2022 , 01:02 PM

Following the 10-year U.S. Treasury yield crossing the 3% threshold to reach a five-week high, Indian government bond yields increased on Tuesday as market participants worried about ongoing inflationary pressures.

Traders are also anticipating debt issuance from states, according to news reports, which plan to sell 10- to 24-year bonds to raise Rs6800 crore. However, the amount raised is less than half of the Rs12000 crore that was anticipated.

The benchmark 10-year government bond yield was 7.2960%. The yield reached 7.2702% on Monday after increasing by 9 basis points over the previous three sessions.

On Monday, the yield on the 10-year U.S. note increased as investors anticipated that the Federal Reserve will reaffirm its commitment to combating inflation by raising rates.

During his speech at the Jackson Hole conference on Friday, Fed Chair Jerome Powell is expected to reiterate the importance of managing inflation, according to news reports.

Since March, the U.S. Federal Reserve has increased interest rates by 225 basis points, including two consecutive 75 basis point increases in June and July.

According to the CME FedWatch Tool, the chances of the Fed raising rates by another 75 basis points the following month are marginally higher than those of rises of 50 basis points.

After highlighting inflation concerns in the minutes of a rate-setting meeting, members of the Reserve Bank of India’s monetary policy committee, and market investors have remained cautious.

Consumer inflation in India decreased to 6.71% in July, slowing for the third consecutive month, but still above the RBI’s mandated goal range of 2-6% for a seventh consecutive month.

To combat increasing pricing pressure in August, the RBI increased the bank’s key lending rate by 50 basis points to 5.40%, its third increase in four months. Since May, the RBI has increased the repo rate by 140 basis points.