Bond yields surge as US Treasury yields top five-month levels

Bond market news: Indian government bond yields surged on Friday as heightened US inflationary pressures cast doubts on the Federal Reserve's ability to implement interest rate cuts in the foreseeable future, leading to an uptick in Treasury yields.

As of 10 am, the yield on the benchmark Indian 10-year bond (IN071833G=CC) stood at 7.1749 per cent, climbing from its Wednesday close of 7.1112 per cent. Earlier in the day, the yield peaked at 7.1809 per cent, marking its highest level since January 29, while bond markets remained closed on Thursday.

A trader from a primary dealership remarked, "June rate-cut bets are out of the window for now, and even September seems to be a distant possibility, and the recent rise in Treasury yields seems to be more permanent, with high chances of touching fresh highs, instead of a correction."

US Treasury yields surged to levels last witnessed five months ago following the release of hotter-than-anticipated inflation data on Wednesday, sparking concerns over the Fed's ability to implement interest rate cuts this year.

The two-year yield (US2YT=RR), considered a close indicator of rate expectations, surpassed 5.00 per cent, while the 10-year yield (US10YT=RR) nearly reached 4.60 per cent.

The inflation data, coupled with robust US non-farm payrolls data from the previous week, significantly reduced the likelihood of a rate cut in June to just above 20 per cent, down from 66 per cent the previous week, according to the CME FedWatch tool.

DBS commented that the "soft-landing" base case is now under challenge as recent data points toward relatively heated economic conditions, suggesting that the Fed may not require rate cuts this year.

In India, traders are closely monitoring local inflation data and fresh debt supply expected later in the day for further market cues. New Delhi is set to raise 300 billion rupees ($3.60 billion) through the sale of bonds, including a new 15-year paper.

Additionally, India's consumer price inflation is anticipated to have eased to a five-month low of 4.91 per cent in March from 5.09 per cent in February, although remaining above the 4 per cent target, according to a Reuters poll.

(With Reuters inputs.)