The 10-year benchmark bond yields rose by 8 basis points, logging its biggest single-session rise in over seven months amid the rise in US Treasury yields, weakening rupee and the sell-off in the equity markets.
The 10-year yield ended at 6.85 per cent, its highest since November, compared with its previous close of 6.77 per cent. The bond yield posted its biggest single-session rise since June 4, 2024.
“The rise in crude oil prices, US bond yields and the declining Indian rupee have added to the weak sentiment in the money market,” said a dealer. US bond yields rose to 4.8 per cent, the highest since November 2023. US yields are likely to cross the 5 per cent in the coming days as strong economic data is expected to fuel Fed rate concerns.
According to Goldman Sachs, the RBI’s forex sales to quell volatility in the rupee in a strong dollar environment, has drained domestic banking system liquidity and tightened financial conditions significantly, with overnight rates trading above the policy rate. “Hence, although we expect natural domestic demand for government bonds to remain adequate in FY26, we believe the RBI will have to be a net buyer of government bonds in FY26, to inject rupee liquidity in the banking system and partly offset forex sales related rupee liquidity drain. This is important to aid transmission in a monetary policy easing cycle which we expect to start with a 25 bps repo rate cut later in the quarter,” it said.
The US Treasury yield rose to its highest since November 2023 on Monday after US jobs growth unexpectedly accelerated in December, while the unemployment rate fell below market expectations. US yields had already been rallying on concerns that President-elect Donald Trump’s proposed policies could reignite inflation, leading to fewer rate cuts.
In December, the Federal Reserve pared back its expectations of rate cuts in 2025 to 50 basis points from 100 bps. After Friday’s jobs report, investors expect just about 26 bps of reductions this year.
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