Bond yield hits 8.03%, eases later

The yield on government bonds eased towards close after the 10-year benchmark yield jumped to near 18-month high in a knee-jerk reaction to the Reserve Bank of India’s (RBI’s) move to raise short-term interest rates.

The yield closed at 7.85 per cent, two basis points over Friday’s close, according to data available on the Negotiated Dealing System. Dealers said morning trades saw a sharp spike in yields to touch the 8.03 per cent-mark. It is more of an immediate reaction, which also factors in illiquidity component. Though it was expected, the timing came as a surprise, they said.

RBI Deputy Governor KC Chakrabarty in Bangalore said inflation might have peaked. This was perceived as a comforting factor leading to easing yields. Dealers said the market was consolidating after the sudden rise in bond yields and trading would remain rangebound ahead of the central bank's bond auction calendar announcement, which is expected at March-end. The 10-year yield would trade in the range of 7.80-8 per cent ahead of the announcement. The government aims to raise Rs 457,000 crore on a gross basis from the market through issuances of dated securities in the next financial year.