Bond Yields Reach 7.05% Amid Surge in US Treasury and Crude Prices

Market Sentiment Takes a Hit as India's 10-Year Bond Yield Climbs

India's benchmark 10-year bond yield climbed three basis points at the open on May 15, as Brent crude prices and a surge in US treasury yields dampened investor sentiment. The bond prices fell as benchmark 10-year yield rose to 7.05 percent from 7.02 percent in the previous session.

The decline in market sentiment was further exacerbated by the prolonged deadlock between the United States and Iran, keeping the Strait of Hormuz closed. This has led to a sharp increase in global energy costs, prompting state-run oil marketing firms to raise petrol and diesel prices by Rs 3 a litre each in the morning.

Brent crude is currently trading at near $107 a barrel, while FII outflows and debt have weakened the sentiment for Indian assets. Additionally, strong US economic data has dampened expectations for a rate cut in the near term, boosting the dollar and treasury yields. The benchmark 10-year treasury yield has crossed the psychological 4.5 percent mark.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The CME FedWatch tool has shown that the probability of another 25 bps rate hike by December has jumped to nearly 37 percent, up from 22 percent just a week ago. This has forced global fund managers to hedge against higher-for-longer borrowing costs.

| Comparison of Probability of Rate Hikes by December | | --- | --- | | Current Probability | 37% | | Previous Week's Probability | 22% | | Change in Probability | 15% |

The market is also awaiting the weekly debt auction later in the day, where the government is expected to raise Rs 32,000 crore through the sale of bonds. Meanwhile, the rupee opened 11 paise lower at 95.87 against the dollar after ending the previous session at 95.76. It sank to a new low of 95.95 against the dollar on May 14, coming close to the psychological 96 mark before recouping some of its losses.