The yield on 10-year benchmark bond rose sharply by more than 14 basis points on Friday after the Reserve Bank of India (RBI) increased repo rate by 50 basis points.
The 10-year benchmark 6.54%-2032 bond yield ended at 7.3005 per cent, as against 7.1566 per cent close on the previous trading session. The bond market was extended by one-and-a-half hour to 5 p.m. due to late announcement of the weekly bond auction results.
“The bond market sold off after the policy announcement with yields moving higher by 15-20 basis points across the curve. Given that the bond yields have come down significantly over the last month, there is a possibility of a further rise in bond yields in the short term,” said Pankaj Pathak, Fund Manager – Fixed Income, Quantum AMC.
The RBI in its bi-monthly monetary policy increased repo rate by 50 basis points to 5.40 per cent on Friday to contain inflation. Consequently, the standing deposit facility rate adjusted to 5.25 per cent and marginal standing facility and bank rate adjusted to 5.65 per cent.
The central bank has retained GDP and inflation forecasts at 7.2 per cent and 6.7 per cent, respectively, for the current financial year.
“With inflation expected to remain above the upper threshold in Q2 and Q3, the MPC stressed that sustained high inflation could destabilise inflation expectations and harm growth in the medium term. The MPC, therefore, judged that further calibrated withdrawal of monetary accommodation is warranted to keep inflation expectations anchored and contain the second-round effects,” RBI Governor Shaktikanta Das said.
In the weekly bond auction, the central bank raised Rs 33,000 crore through four bonds.
The RBI raised Rs 4,000 crore through 6.69%-2024 gilt at cut-off price of Rs 100.04 or 6.6616 per cent cut-off yield, Rs 7,000 crore via 7.10%-2029 at cut-off price of Rs 99.35 or 7.2213 per cent yield, Rs 13,000 crore via 6.54%-2032 at cut-off price of Rs 94.66 or 7.3328 per cent yield, and Rs 9,000 crore via 6.95%-2061 at cut-off price of Rs 90.86 or 7.6898 per cent yield.
Market participants expect that by the end of this month, the central bank may announce a new benchmark bond as current benchmark bond has crossed Rs 1.4 lakh crore outstanding.
“Bond yields may not move up significantly from current levels. We expect the 10-year G-sec yield to find support around 7.5 per cent,” Pathak added.