Bond yields rise as rate hike fears loom
MUMBAI: Federal bond yields rose on Monday after an increase in retail petrol prices over the weekend stoked concerns inflation could accelerate and trigger a tougher monetary stance by the central bank.
"The fuel price hike, even if it is only petrol currently, adds to the general fear inflation would harden which in turn feeds into the rate hike concerns," said P.K. Ojha, chief manager of treasury at State Bank of Hyderabad.
State-run oil firms raised petrol prices by about 4.5 percent on Saturday, citing rising world oil prices.
At 11:05 a.m. (0535 GMT), the most actively traded 8.08 percent, 2022 bond and the second-most traded 8.13 percent 2022 bond yields were both up 2 basis points at 8.21 percent.
The less liquid benchmark 10-year bond yield was also up 2 basis points at 8.21 percent.
In the overnight indexed swap market, the benchmark five-year swap and the one-year rate was up 6 basis points each, at 7.94 percent and 7.36 percent respectively.
Bond yields have been under pressure for many weeks on heightened rate hike fears as inflation picked up pace on the back of a spurt in vegetable prices.
Headline inflation accelerated in December on costlier food items and the Reserve Bank of India is expected to raise key rates by at least 25 basis points on Jan. 25.
The government is scheduled to raise Rs 110 billion ($2.4 billion) through sale of bonds this week, and traders are awaiting the details of the securities to be announced late on Monday.
"The fuel price hike, even if it is only petrol currently, adds to the general fear inflation would harden which in turn feeds into the rate hike concerns," said P.K. Ojha, chief manager of treasury at State Bank of Hyderabad.
State-run oil firms raised petrol prices by about 4.5 percent on Saturday, citing rising world oil prices.
At 11:05 a.m. (0535 GMT), the most actively traded 8.08 percent, 2022 bond and the second-most traded 8.13 percent 2022 bond yields were both up 2 basis points at 8.21 percent.
The less liquid benchmark 10-year bond yield was also up 2 basis points at 8.21 percent.
In the overnight indexed swap market, the benchmark five-year swap and the one-year rate was up 6 basis points each, at 7.94 percent and 7.36 percent respectively.
Bond yields have been under pressure for many weeks on heightened rate hike fears as inflation picked up pace on the back of a spurt in vegetable prices.
Headline inflation accelerated in December on costlier food items and the Reserve Bank of India is expected to raise key rates by at least 25 basis points on Jan. 25.
The government is scheduled to raise Rs 110 billion ($2.4 billion) through sale of bonds this week, and traders are awaiting the details of the securities to be announced late on Monday.
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