Bond yields rise as RBI keeps door open for another rate hike

The benchmark 10-year yield ended at 7.3435%, after closing at 7.3102% on Tuesday.

The 10-year 7.26% 2033 bond yield ended at 7.3041%. Bond market trading was extended by 30 minutes to 4:00 p.m. IST.

The RBI monetary policy is on expected lines, but its texture is slightly hawkish as it kept the option open to act in line with upcoming data and global conditions, said VRC Reddy, treasury head of Karur Vysya Bank.

“In the absence of positive triggers in the near term, demand and supply metrics will play a key role in driving the yields and I expect the benchmark 10-year bond yield to touch 7.40% in coming days,” Reddy said.

The central bank raised the repo rate for the sixth consecutive time by 25 basis points to 6.50% which was expected, but said the policy stance would remain focused on the withdrawal of accommodation, with four of the six Monetary Policy Committee members voting in its favour.

Most analysts had expected the hike to be the final one in the RBI’s current tightening cycle, with some hoping the stance to change to neutral.

A growing number of central banks around the world have signalled a pause or halt in their tightening campaigns in recent weeks as consumer inflation comes off the boil and growth shows signs of softening.

Traders will now brace for heavy debt supply over the next two days, as the central government is set to raise 80 billion rupees ($969.78 million) through green bonds on Thursday and 300 billion rupees through debt sale on Friday. ($1 = 82.4930 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Sohini Goswami)