India bond yields end higher as US Fed's hawkish stance unnerves investors

Indian government bond yields ended higher on Monday, tracking US Treasury yields, as the Fed emphasised it would keep raising rates to rein in inflation

Indian government bond yields ended higher on Monday, tracking U.S. Treasury yields, as the U.S. Fed emphasised it would keep raising rates to rein in inflation.

The benchmark 10-year government bond yield ended at 7.2534%. The yield had slumped seven basis points on Friday to end at 7.2173%. The new 10-year 7.26% 2032 bond yield ended at 7.2347% after ending at 7.2049% on Friday.

"The fall in yields is not able to sustain, as we are having constant flow of negative news, and market will now increase their expectation of a rate hike by the Reserve Bank of India next month," said Debendra Kumar Dash, senior vice president, treasury, at AU Small Finance Bank.

On Friday, U.S. Federal Reserve Chair Jerome Powell signalled rates would be kept higher for longer to bring down inflation, which has led to concerns domestically over similar moves by the Reserve Bank of India (RBI).

The 10-year U.S. Treasury yield rose to 3.11% earlier on Monday, while the two-year yield jumped to their highest levels in nearly 15 years and was at 3.4702%.

The Fed has raised rates by 225 basis points since March. The RBI has hiked rates by 140 basis points in May-August and the next policy decision is due on Sep. 30.

"Market will slowly start to expect a rate hike of higher quantum than what was factored in before Fed commentary," Dash said.

The RBI is set to raise its key repo rate by another 60 basis points by the end of March to try to bring inflation within the tolerance band, according to a Reuters poll of economists.

Meanwhile, the benchmark Brent crude contract continued to trade above $100 a barrel, stoking inflation fears, as India is a major importer of crude.

India's consumer inflation has stayed stubbornly above 6% for seven straight months.

 

(Reporting by Dharamraj Lalit Dhutia; Editing by Neha Arora)