MUMBAI: Indian government bond yields continued to witness fresh highs, after US yields saw the breakout of key technical points on bets of more rate hikes, while fresh supply of debt locally pinned down investor sentiment further.

The benchmark 7.26% 2033 bond yield was at 7.1624% as of 10:00 a.m. IST, after ending the previous session at 7.1464%.

The yield hit 7.1755% earlier in the day, the highest since April 21.

Indian benchmark yield at over 2-month high as US peers rise

New Delhi plans to raise 390 billion Indian rupees ($4.72 billion) through the sale of debt later in the day. This would be the first auction for this quarter laden with debt supply.

“With the 7.15% level taken out so easily and rapidly, there is an environment of caution among traders, and that should (be) reflected in auction demand for sure,” a trader with a private bank said.

US yields jumped on Thursday after labour market data further fuelled expectations that the Federal Reserve will aggressively raise interest rates as it tries to rein in persistently high inflation down towards its 2% target rate.

Private payrolls jumped by 497,000 jobs last month, the ADP National Employment report showed, well above the 228,000 forecast and indicating the labour market remains resilient despite the Fed’s efforts to slow the economy.

The report comes after the minutes of the Fed’s June meeting reiterated that more rate hikes are coming. The Fed had raised rates by 500 basis points in 10 consecutive meetings from March 2022 to May 2023, before pausing in June.

The odds of an increase in July have now risen to around 89%, while that of another rate hike later in the year now stands at around 45%.

The 10-year US yield jumped to 4.08%, the highest in four months, while the two-year yield jumped to 5.12%, the highest in 16 years. The yields remained above the crucial 4% and 5% levels, respectively, on Friday.