MUMBAI: Indian government bond yields are likely to continue their upward swing on Wednesday after US yields reversed course to rise, while oil prices also topped a key psychological level.
The benchmark 7.26% 2033 bond yield is likely to be in the 7.21%-7.26% range after ending the previous session at 7.2068%, which was the highest closing level in two weeks, a trader with a private bank said.
“The way Treasuries have reversed direction and started climbing again, sentiment has turned negative, and we may see some selloff in local bonds at the open today,” the trader added.
US yields jumped, with the 10-year yield now up 20 basis points from its lows hit last Friday, after better-than-expected economic data and comments from a Federal Reserve official that interest rates could be higher for an extended period.
Orders for US factory goods declined in July by 2.1%, but less than the 2.5% decline expected by economists polled by Reuters.
Fed Governor Christopher Waller said the latest round of economic data was giving the central bank space to see if it needs to raise interest rates again while cautioning that the market should not assume the hiking cycle is finished.
Still, the odds of another rate hike by the Fed later this month remained around 7%.
The 10-year US yield however hit a high of 4.27% and remained above the crucial 4.25% handle. Locally, the focus remains on the evolving liquidity situation ahead of the Reserve Bank of India’s (RBI) review of incremental cash reserve ratio on banks, as well as on the inflation trajectory.
India’s monetary policy committee will remain watchful of the evolving inflation situation but the recent spikes in vegetable prices would start ebbing going ahead, RBI Governor Shaktikanta Das said on Tuesday.
India’s retail inflation rose to a 15-month high of 7.44% in July from 4.87% in June.