Wednesday, March 29, 2023

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Bond yields rise tracking US peers; volume low ahead of year-end

MUMBAI: Indian government bond yields rose in early trade on Wednesday tracking a rise in US yields, even as the majority of the market participants stayed away ahead of quarter-end and calendar year-end.
The benchmark 10-year yield was at 7.3217% as of 10:00 a.m. IST after ending at 7.3077% on Tuesday.
The 10-year US yield has seen a massive correction, and this has resulted in negative sentiment in the Indian market, a trader with a state-run bank said. “Had it not been for the quarter-end, we could have seen a much larger move.”
US Treasury prices dropped, with the 10-year yield rising to 3.86% earlier in the day, as investors tried to assess the path of interest rate hikes by the Federal Reserve and China’s decision to further scale back its Covid-19 restrictions.
The yield eased to 3.40% earlier this month, anticipating a policy pivot by the Fed, but the central bank continued to maintain a hawkish tone.
The 10-year yield gained over 10 basis points (bps) this week, after last week’s massive 27 bps rise.
The Fed has raised interest rates by 425 bps in 2022 to the 4.25%-5.00% range, and is expected to hike rates by another 75 bps in 2023, continuing its battle against inflation in the new year.
More rate hikes from the Fed may put similar pressure on the Reserve Bank of India (RBI), which raised the repo rate by 225 bps in 2022 to 6.25% to rein in inflation.
Traders said the next major trigger may be the Union budget, which will detail the 2023-2024 supply calendar for the next year.
Meanwhile, the union government will raise 300 billion rupees ($3.62 billion) through the sale of bonds on Friday, while the RBI will auction Treasury Bills worth 220 billion rupees later in the day.

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