20 hrs ago
Indian Bond Yields Near 7% as Rate Hike Bets Rise
Indian government bonds are becoming less attractive because investors think interest rates may rise.
When this happens, bond yields usually go up.
The yield on a key 10-year bond reached 6.96%, very close to 7%.
Higher oil prices and fighting in West Asia have increased worries about inflation.
Comments from central banks have also made investors expect higher rates.
Some traders think the Reserve Bank of India could raise rates by 50 basis points this year.
However, other dealers say markets have already priced in a lot of possible rate increases.
They expect yields to stay around 7% unless inflation remains high for a long time.
The benchmark 10-year Indian government bond yield closed at 6.96%, its highest level since June.
The yield has climbed more than 10 basis points in a week as markets reassessed interest-rate prospects.
Hawkish central-bank signals, higher oil prices and renewed West Asia tensions have pressured bonds globally.
Some traders now see a possible 50-basis-point Reserve Bank of India rate hike this year.
Dealers expect the 10-year yield to remain near 7% unless prolonged inflation or clearer RBI tightening signals emerge.
- Who
- Indian bond traders, the Reserve Bank of India, global central banks and investors are involved.
- What
- The 10-year Indian government bond yield rose to 6.96% as markets increased bets on future interest-rate hikes.
- Where
- The pressure is affecting India’s bond market and financial markets worldwide, including those in Japan, the United Kingdom and the United States.
- When
- The yield reached this level on Tuesday after rising for about a week.
- Why
- Hawkish policy signals, higher oil prices, renewed West Asia tensions and a more hawkish reading of recent RBI meeting minutes have increased inflation and rate-hike expectations.
Rate-Hike Concern
Limited Near-Term Yield Upside
RBI policy outlook
Rate-Hike Concern
Hawkish signals in the August Monetary Policy Committee minutes, including references to policy recalibration and a possible rate hike, have led traders to place fresh bets on monetary tightening.
Limited Near-Term Yield Upside
Dealers say markets have already priced in substantial tightening, including a 100-basis-point rate hike over the next year in the OIS market, limiting further immediate yield increases.
Path for the 10-year yield
Rate-Hike Concern
A sustained move above 7% could occur if inflation remains high for a prolonged period or if there is clearer evidence that the RBI will raise rates.
Limited Near-Term Yield Upside
The yield may remain within the 6.95%-7% range in the near term because expectations for tighter policy are already reflected in prices.
Key facts
- 10-year Indian bond yield
- 6.96% at Tuesday’s close, the highest level since June
- Weekly yield movement
- The benchmark yield rose more than 10 basis points over the past week
- Possible RBI move
- One market participant said a 50-basis-point rate hike this year is the most likely scenario
- One-year OIS
- Rose about 20 basis points over the past week to 6.01%
- Five-year OIS
- Rose 11 basis points over the past week to 6.51%
- Expected near-term range
- A dealer expects the 10-year yield to trade between 6.95% and 7%
Quotes
Gopal Tripathi
Treasury head at Jana Small Finance Bank
“Bond yields have been under pressure for about a week, especially after Kevin Warsh’s hawkish remarks, which pushed US yields higher. Compounding this, fresh geopolitical escalations have added further pressure.”
financialexpress.com
“Looking at the near-term yield curve, the most likely scenario is a rate hike of 50 basis points this year.”
financialexpress.com
An unnamed bond-market dealer
Dealer commenting on near-term bond-yield prospects
“I expect yields to trade in the 6.95-7% range for now. OIS has already priced in a 100-basis-point rate hike over the next one year. Therefore, the upside is limited unless there is evidence that inflation will remain higher for a prolonged period.”
financialexpress.com
Sources
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