The government bond yields are expected to rise sharply in the early session on Thursday, tracking the U.S. peers, while local inflation jumped the most in 15 months.
The benchmark 7.26% 2033 bond yield is likely to be in the 7.23-7.27% range after ending the previous session at 7.2034%, a trader with a primary dealership bank said. India’s fixed income markets were closed on Tuesday and Wednesday.
U.S. yields continued to rise, and the move got a push after minutes from the Federal Reserve’s July meeting showed that officials were divided over the need for more interest rate hikes, though “most” policymakers continued to prioritise the battle against inflation.
The Fed had raised rate by 25 basis points in July to 5.25%-5.50% range, with the probability of another hike in September now at around 14%.
Even though the market is not expecting another hike, consensus indicates rates staying elevated longer, driving a sustained uptick in U.S. yields. The 10-year yield hit 4.2880%, the highest in nearly 10 months, while the two-year yield was hovering around the 5% mark.
Back home, retail inflation in July rose to its highest in 15 months as vegetable and cereals prices skyrocketed, beating all market expectations. Inflation spiked to 7.44% in July from 4.87% in the previous month. A Reuters poll of 53 economists had forecast a rate of 6.40%.
The July figure was the highest since April 2022 and breached the upper end of the central bank’s inflation band of 2%-6% for the first time in five months, which could prompt the bank to turn more hawkish.