MUMBAI: Indian government bond yields were marginally lower early on Wednesday, as traders covered short positions after inflation data from the United States and India. The benchmark 10-year yield was at 7.3544% as of 10:00 a.m., after closing at 7.3692% on Tuesday.

“Since both the data points are behind us, and the US print did not show any major negative surprise, shorters are covering their positions,” a trader with a state-run bank said.

Benchmark bond had outstanding short positions at over 110 billion rupees ($1.33 billion) after India’s inflation data. US Treasury yields rose on Tuesday after headline consumer prices showed inflation increased 0.5% month-over-month, after rising 0.1% in December, while core prices rose 0.4%.

The data cemented bets that the Federal Reserve may hike interest rates twice by 25 basis points in the next three months.

The US central bank has raised interest rates by 450 bps since 2022 to fight inflationary pressures.

India bonds yields end tad higher as inflation shock raises rate-hike bets

Earlier this week, sentiment in the local bond market turned bearish on data showing retail inflation in January jumped to 6.52%, surpassing estimates and above the Reserve Bank of India’s upper threshold for the first time since October.

Last week, the RBI raised the repo rate for the sixth consecutive time by 25 bps to 6.50%, and kept the door open for more tightening after saying that core inflation stayed “sticky”.

The one-year overnight indexed swap rate, often seen as the clearest indication of future policy rates, rose to the highest level in three months, signalling that another interest rate hike is likely in April, analysts said.

Traders now await debt supply on Friday, where the government will raise 280 billion rupees through the sale of bonds, and will include 120 billion rupees of 7.26% 2033 note, which will replace the existing benchmark soon. The RBI will auction Treasury Bills worth 290 billion rupees later in the day.