The yield on the 10-year benchmark bond continued to rise as prospects of a rate cut faded, according to market participants. The yield on the 10-year bond rose 2 basis points to 6.37% on Monday, the highest level since June 11. The 10-year bond traded flat since the last monetary policy on June 6 due to lack of cues.
“The statements from RBI governor triggered a wave of negativity in the bond market. Consequently, investors responded with a sell-off last on Friday, reflecting concerns that the central bank may delay easing measures,” said a senior bond trader with a private sector bank. The sell-off continued on Monday as expectations of a rate cut in the upcoming August policy have reduced significantly, he said.
When the CPI inflation print came in at a six-year low of 2.1%, some market participants had expected another rate cut in August.
Speaking at the FE Modern BFSI Summit in Mumbai on Friday, RBI Governor Sanjay Malhotra said: “Price stability is our primary mandate and history teaches us that high inflation, if volatile, undermines growth. While we have won a battle, the war against inflation is still going on.”
He further said the bar for further easing is now higher, though a neutral monetary policy stance provides the flexibility of moving up or down, or pause.