Government Bond yields spike ahead of debt auction

Bond yields rise: Government bond yields experienced an early-session increase on Friday, mirroring the upward movement of US Treasury yields. Investor caution prevailed ahead of a forthcoming central government debt auction scheduled for later in the day.

India aims to raise Rs 350 billion ($4.21 billion) through the bond sale, including the liquid 14-year bond and a newly introduced 30-year green bond.

As of 10:10 a.m. IST, India's benchmark 10-year yield stood at 7.1900 per cent, rising from Thursday's closing at 7.1774 per cent. A trader from a private bank noted, "US yields have shifted direction significantly, with talks of further upside tests, impacting local sentiment." However, the trader highlighted that bullish positions by foreign banks are providing support, creating resistance around the 7.20 per cent levels for the benchmark.

The increase in US yields followed Thursday's data indicating robust job growth and a decrease in Americans filing new unemployment claims to the lowest level since late 2022. This data reduced the likelihood of immediate rate cuts, pushing the 10-year US yield above 4.15 per cent for the first time since December 13. Traders also adjusted the odds of a Federal Reserve rate cut by March to 53 per cent, down from 73 per cent the previous week, according to the CME's FedWatch Tool.

The shift in US yields coincided with comments from a Federal Reserve Governor expressing caution about inflation remaining lower before considering a rate easing cycle.

Meanwhile, Reserve Bank of India Governor Shaktikanta Das emphasised the need for India's monetary policy to remain actively disinflationary despite a recent significant decline in core inflation. In an interview with Reuters, Das said, "When inflation is still above 5.5%, rather close to 6%, our monetary policy has to remain actively disinflationary, and it would be too premature to talk in terms of a pivot in our monetary policy."

(With Reuters Inputs)