10-year bond yield breaches 7.20%; hits 2.5-year high

Yields on the 10-year benchmark bond breached the psychologically significant 7.20% threshold on Thursday, closing at their highest level in two and a half years at 7.21%.

The yield is expected to inch up further to 7.50% levels as crude oil prices remain high and amid expectations of a rate hike by the central bank next week. The 10-year yield had previously closed at 7.18%, according to CCIL data.

Yields last touched 7.50% in October 2022.


The domestic bond tracked its US counterpart, which at 5.33% is at its highest yield since 2002, according to Reuters. The bond market will remain shut on Friday for Gandhi Jayanti, and the central bank will announce its rate decision next week and is expected to raise interest rates by 25 basis points to 5.50%. "There is a healthy supply of bonds, both central and state, and as per today's price action, it seems like the market is pricing in a 50 bps hike. Yields will likely inch up further if there is a 25 bps hike, and we may see a relief rally if the RBI hikes by 50 bps. Nevertheless, I think we would touch a peak of 7.50% in benchmark yields in this cycle," said Rajeev Pawar, head of treasury, Ujjivan Small Finance Bank.

The government sold debt of ₹33,000 crore on Thursday, while state governments are expected to sell bonds worth ₹3.3 lakh crore to ₹3.5 lakh crore next week. This would potentially weaken supply-demand dynamics, with supply outweighing demand, traders said.

"Market sentiment will remain bearish until oil prices cool, the MPC is further adding to the volatility. I think yields would retrace from 7.25%, as there could be some buying interest that emerges at that level," said a bond trader at a large public sector bank.