Gilt yields rose sharply across the curve

Gilt yields rose sharply across the curve. The LAF rate hike by RBI led to the downfall in gilts. Initially in the week, US treasury prices rose on account of soft job growth data in May.

However, apprehensions ahead of the Rs 10,000-crore gilt auction and Fed’s comments on inflation limited gains. The hike in fuel prices reinforced expectations of a rate hike by RBI.

RBI set a cut-off price of Rs 108.33 (yield at 7.3877%) at the auction of the 9.39% GoI 2011. The cut-off yield at the auction of the GoI 2036 was set at 8.33%.

Moreover, a FM official’s statement that the increase in domestic fuel prices might impact inflation further marred the sentiment.

Yields are likely to inch up further. Expectations of a rate hike by the Fed in its upcoming meet are likely to keep the market sentiment subdued.