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10-Year Bond Yield at 3-Year High on Rising Inflation


The yield on 10-year government bonds was at a three-year high at opening today, after the Central Statistics Office (CSO) reported a more than expected rise in inflation data on Monday. Bond yield was observed at 7.903 percent level at around 9:15 am on Tuesday, close to the level on May 18, 2015. It had closed at 7.895 percent yesterday after the WPI numbers were released.

10-Year Bond Yield at 3-Year High on Rising Inflation

As per the data released by Ministry of Statistics and Programme Implementation, Consumer Price Index (CPI) increased to 4.48 percent for the month of April from 4.28 percent in March, reversing its downward trend for the previous three months. Wholesale Price Index (WPI) also increased, touching a four-month high of 3.18 percent.

Inflation can also be factored on the falling rupee value. The domestic currency opened at a 15-month low at 67.69 against the dollar, after rising to 67.52 in its previous close, along with rising fuel prices.

Rise in inflation points at prospective hike in interest rates by the Reserve Bank of India (RBI) to curb inflation. The MPC (Monetary Policy Committee) headed by RBI governor Urjit Patel will be meeting in June for its monetary policy review.

Meanwhile, bonds markets are facing pressure from foreign investor sale. In the equity and debt market, they have bought $671.5 million, and sold $3.21 billion. RBI on Friday could only sell Rs 81 crore out of the Rs 3,000 crore government bonds that were on offer.

As fuel prices are expected to continue rising, CPI (inflation on household items) are expected to only be curbed by a normal monsoon.

Read more about: government bonds
Story first published: Tuesday, May 15, 2018, 10:59 [IST]
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