January 22, 2022

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Bond yields hit 2-yr high as US Treasuries surge

Bond yields hit 2-yr high as US Treasuries surge


The 10-year benchmark 6.10%-2031 bond yield ended at 6.5896% against 6.5423% on Friday. Since last week, the yield on the benchmark bond is up more than 13 bps.

Yields on benchmark bonds rose by more than 4 basis points on Monday, following a surge in yields on US Treasuries and uptick in oil prices in the international market. Adding to this, investors have reduced their exposure because they are expecting the Reserve Bank of India to announce new benchmark securities that to be auctioned in the weekly bond auction on Friday.

The 10-year benchmark 6.10%-2031 bond yield ended at 6.5896% against 6.5423% on Friday. Since last week, the yield on the benchmark bond is up more than 13 bps. The sell-off is largely because of devolvement by the RBI in the weekly bond auction. “This is on the back of auction devolvement on Friday on primary dealers,” said Sandeep Yadav, senior vice president, head-Fixed Income, DSP Investment Managers.

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Yields on US Treasuries  rose on Friday by 3 basis points and ended at 1.77% after December’s non-farm payroll grew by 1,99,000 and unemployment rate dropped to 3.9%. Since start of this year, the yield on 10-year US Treasury notes rose by 13 basis points. In India, the bond market has not got much support from the RBI and, hence, it is reflecting on yields.Additionally, the surge in crude oil prices has also weighed on bond yields, as it is creating inflationary pressure that could lead to rate hike by the RBI.

 By the end of Indian market hours, Brent crude oil prices were trading at $82 a barrel.Market participants expect the central bank to announce new benchmark bond and the current benchmark is expected to trade between 6.50-6.60% throughout the week. Till the closing of market hours, the central bank did not announce any new benchmark bond.

“If the RBI does not announce new benchmark bond then we can expect the current benchmark yield to rise by 4-5 basis points in the coming days,” a dealer with a state-owned bank said.Absence of demand and risk of excess supply continued to weigh on market sentiment. Upasna Bhardwaj, senior vice president, Kotak Mahindra Bank, says in a report: “We expect the 10-year paper to remain in the 6.50-6.60% in the near term.”

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