Government bond yields edge higher on OMO sales, Fed rate bets

Mumbai: Government bond yields rose on Tuesday after the central bank announced bond sales in the shorter tenure segment late on Friday, increasing supply in the bond market. Retail inflation at a 20-month high also caused yields to increase, as it stoked expectations of a rate hike as early as next month.

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Yields of 10-year benchmark bond rose 7 bps to 7.07%, and the five-year bond by 17 bps to 6.79%, as per CCIL data. Global bond yields hardened, too, and the 10-year US Treasury moved above 5.02% on Tuesday, hitting its highest level since 2007, as per Reuters. Pressure on yields is likely to continue heading into the US Fed's Federal Open Market Committee set on Wednesday, where Chair Kevin Warsh could hike rates. "The last high was 7.14% for the 10-year, which will be a resistance point. If the yield goes above that, then a 7.20%-7.25% is possible. Triggers for this, apart from a Fed hike, can be another OMO sale or a large state government bond supply," said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.


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