Bond yields rise amid surge in treasury yields, changes in debt auction methodology

Bond yields surge: Government bond yields experienced an uptick on Tuesday, influenced by a spike in Treasury yields and adjustments in the domestic debt auction process, marking the first trading session of the new financial year (FY).

The increase in yields, however, was tempered by the government's announcement of an upcoming auction for a new 10-year bond, set to replace the existing benchmark. 

The yield on the current benchmark 10-year bond was recorded at 7.0835 per cent as of 10:00 am on Tuesday, following a close of 7.0556 per cent on Thursday, with markets closed on Friday and Monday.

Traders attributed the immediate trigger for the rise to the surge in US yields, driven by stronger-than-expected manufacturing data, casting doubt on the Federal Reserve's potential interest rate cuts. 

Meanwhile, the US 10-year yield surpassed 4.30 per cent, with reduced expectations of a rate cut in June, according to the CME FedWatch tool.

On the domestic front, the government announced plans to auction new 10-year bonds worth Rs 20,000 crore on Friday to initiate its borrowing programme for the financial year. 

However, sentiment was dampened by the Reserve Bank of India's decision to adopt a multiple price-based method for all debt auctions, prompting caution among investors, particularly for on-the-run liquid notes with larger issue sizes.

While the government aims to borrow Rs 7.50 lakh crore through bond sales from April to September, accounting for 53 per cent of its full-year target, traders note that the quantum is lower than their estimates. 

Additionally, market participants await the central bank's monetary policy decision on Friday, with expectations leaning towards a status quo.

(With Reuters Inputs)