Indian government bond yields jumped on Friday, with the benchmark yield posting its biggest single-day rise in six months, tracking US yields after elevated inflation reaffirmed doubts over interest rate cuts in the near future. The yield on the benchmark Indian 10-year ended at 7.1794 per cent, the highest since January 24, after closing at 7.1112 per cent in the previous session.
The yield posted its biggest single-session rise since October 6 when the central bank had spoken about the use of open market sale of bonds to manage liquidity. For the week, the yield rose six basis points, after rising seven bps in the first week of the financial year.
“The third successive hot inflation print in the US has completely shaken expectations of both the extent and the timing of rate cuts in 2024. We continue to maintain that the Fed will not cut rates this year,” said Madhavi Arora, lead economist at Emkay Global.
US yields climbed to levels seen five months ago after the hotter-than-anticipated inflation data. The two-year yield, the closest indicator of rate expectations, topped five per cent, while the 10-year yield nearly touched 4.60 per cent. The yield continued to remain around multi-month highs.
The inflation reading, along with strong US non-farm payrolls data last week, has slashed the odds of a rate cut in June as well as the quantum of overall rate cuts in 2024, according to the CME FedWatch tool.
“As of today, the market is pricing in 42 bps of rate cut in 2024, which indicates the start of the easing cycle in November, but one bad data and the chances could ease to 25 bps,” a trader with a primary dealership said.
Traders await India’s consumer price inflation data that will be released later in the day, which likely eased to a five-month low of 4.91 per cent in March from 5.09 per cent in February, according to a Reuters poll.
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Published: 12 Apr 2024, 08:06 PM IST