Bond Yields Decline to 7.08% on Eve of Weekly Debt Auction
Bond Yields Take a Breather Ahead of Key Debt Auction
The benchmark 10-year government bond yield slipped three basis points on May 22, providing a respite from a volatile week. This move is attributed to cautious traders pulling back ahead of a crucial weekly debt auction and potential dollar sales by the Reserve Bank of India (RBI). The benchmark 10-year bond yield was trading at 7.08 percent against the previous day's close of 7.11 percent.
The benchmark 10-year bond yield has seen a significant increase from 6.66 percent on February 27, a day before the US and Israel launched strikes on Iran. This increase marks a 45 basis point rise in just over two months. The global market is experiencing a surge in bond yields, with countries such as the US and Japan reaching multi-year highs due to concerns over rising inflation. Investors are becoming increasingly nervous that central banks may begin raising interest rates in response to these inflationary pressures.
The Indian government is set to raise Rs 32,000 crore through the sale of three, seven, and 30-year bonds later in the day. This auction is expected to influence the intraday movement of yields. The global market is also being impacted by the ongoing West Asia war, with Brent crude prices staying above $100 a barrel. Some market participants are anticipating a rate hike in the June monetary policy meeting.
Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data
The rupee opened 8 paise lower on May 22, as market participants remained on the sidelines, awaiting potential dollar sales by the RBI to support the currency. The rupee was trading at 96.28 against the dollar, following the previous session's close of 96.20. The currency had snapped an eight-day losing streak the previous day, thanks to likely RBI intervention.
| Date | Benchmark 10-year Bond Yield | Change from Previous Day |
|---|---|---|
| May 22 | 7.08% | -0.03% |
| May 21 | 7.11% | - |
| February 27 | 6.66% | +45 basis points |
Note: The change in bond yield is not directly comparable to the change in rupee value, as the former is a percentage value and the latter is a paise value.
Investor Takeaway
Investors should be cautious ahead of the weekly debt auction and potential dollar sales by the RBI.
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