India's 10-year bond yield spikes to 6.68% as retail inflation rises

The yield on 10 year government of India bonds, benchmark paper, rose sharply to 6.68 per cent in morning trades as all India consumer inflation gallops to over seven per cent mark for the month of December 2019.

The yield opened at 6.15 per cent mark and moved up further to hover around 6.68 per cent level, according to Clearing Corporation of India Ltd ( CCIL) data.

The 10-Y benchmark yield had ended at 6.60 per cent on Monday compared to the previous close of 6.59 per cent on Friday.

Indian Government bonds ended lower on Monday on fears of a sharp rise in December CPI that was released after market hours. Fall in prices was exacerbated due to low trade volumes. 10Y benchmark yield ended at 6.60 per cent compared to the previous close of 6.59 per cent.

The all-India retail inflation, measured by Consumer Price Index ( CPI), jumped to 7.35 per cent in December 2019, compared with 5.54 per cent in November 2019. The provisional inflation rate for rural area was 7.26 per cent in December 2019, up from 5.27 in November and for urban area it was 7.46 per cent in December 2019 as against 5.76 per cent in November 2019.

The present level of Inflation (retail inflation) is way above Reserve Bank of comfort level. The Monetary policy Committee (MLC) of RBI has a target of four per cent as mid point in two-six per cent band for operation of monetary policy. MPC had kept policy repo rate unchanged at 5.15 per cent in December 2019.