Yields to stay sticky

Yields on the new 10-year benchmark 7.80 per cent bond are expected to stay around eight per cent in the fortnight before the Reserve Bank of India (RBI) announces its annual monetary and credit policy for the current financial year.

A higher than expected rate of inflation in March has deepened market expectations that the RBI may go for another round of raises in policy rates. “The market has discounted-in a 25-basis points rate hike in both policy rates, expected on May 3,” said a treasury head of a public sector bank. On Friday, yields on the new 10-year benchmark 7.80 per cent touched eight per cent levels after the announcement of the Wholesale Price Index for the month of March at 8.98 per cent, compared to the 8.31 per cent in February. RBI had projected inflation of eight per cent in March. The 10-year benchmark gilt finally settled at 7.99 per cent on Friday, up by six basis points from its previous close on Wednesday. Markets were shut on Thursday.

“The yield on the 10-year benchmark is expected to be around 7.95-8.10 per cent for the week,” said Ajay Manglunia, senior vice-president, Edelweiss Securities. The most traded bond, 8.08 per cent maturing in 2022, closed at 8.24 per cent, up by three basis points from Wednesday’s close.