India’s 10-year bond yields flirt with 8%, highest in over 3 years

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Published: June 7, 2018 7:37:06 PM

The yields on benchmark 10-year government bonds are flirting with 8%, a day after the central bank hiked repo rate by 25 basis points after a four-and-a-half-year-long pause.

India’s 10-year bond yields flirt with 8%, highest in over 3 yearsThe yields on benchmark 10-year government bonds are flirting with 8%

The yields on benchmark 10-year government bonds are flirting with 8%, a day after the central bank hiked repo rate by 25 basis points after a four-and-a-half-year-long pause. The bond yields surged despite the Reserve Bank of India allowing banks to spread their mark-to-market (MTM) losses for the June quarter. The bond yields on Thursday evening surged to 7.99%. The bond yields had surged to 8.01% last time on June 4, 2015.

India’s government bonds are worst performers in the Asian market and for the past five months have been grappling with the fears relating to higher crude oil prices, fiscal slippages and faster-than-expected rise in UST yields. The bond yields posted a significant pullback last time on February 7 on relief that the central bank did not adopt an outright hawkish tone. DBS forecast earlier this year said that India’s bond yields are going to settle in the range of 7.5%-8% in this financial year.

DBS said that domestic factors and higher global yields will keep pushing India’s 10Y “up at a gradual pace”. The RBI on Wednesday said that in view of the continuing rise in yield of government securities as also the inadequacy of time to build IFR for many banks, it was decided to grant banks the option to spread the MTM losses on investments held in AFS and Held for Trading HFT portfolio for the quarter ending June 30, 2018, equally over a period of four quarters, commencing from the quarter ending June 30, 2018.

The RBI on Wednesday voted unanimously to hike repo rate by 25 basis points, in a first interest rate hike in four-and-a-half years, citing a major upside risk to the baseline inflation on the back of high crude oil price. The central bank said that there was a 12% increase in the price of Indian crude basket, which was “sharper, earlier than expected and seems to be durable”. The RBI kept the stance ‘neutral’, which, analysts said, leaves room for further rate hikes in August depending on domestic and global factors.

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