India 10-yr yield at near 3-year highs, tracks US yields, hawkish RBI

RBI said on Friday it is starting to move away from its ultra-loose monetary policy even as it kept its key lending rate at a record low

India's benchmark 10-year bond yield spiked to its highest level in nearly three years on Monday as investor sentiment turned bearish following a hawkish tilt from the country's monetary policy committee, adding to pressure from a rise in US yields.

The Reserve Bank of India said on Friday it is starting to move away from its ultra-loose monetary policy even as it kept its key lending rate at a record low, as its priorities shifted to fighting surging inflation in the wake of the Russia-Ukraine war.

The benchmark 10-year bond yield was trading at 7.16% by 0625 GMT, up 4 basis points from its close on Friday. It touched 7.19% in intraday trade, its highest since May 27, 2019.

"It is prudent to budget for quicker normalisation than previously envisaged," said Suyash Choudhary, head of fixed income at IDFC AMC.

"The policy de-emphasizes the relative importance of growth and thus changes the context for now in which to look at additional growth worries emerging around the world. It puts prospects of a repo rate hike very much on the table for June," he added.

The US Treasury 10-year yield hit a fresh three-year high in Asia trade on Monday, rising more than 6 bps to 2.7646 as traders bet on a more aggressive policy tightening pace by the Federal Reserve.

Traders in India will be closely watching out for support measures from the central bank with the government scheduled to borrow a record Rs 14.31 trillion from the market in 2022/23. Currently, traders expect the RBI to intervene in the bond market to support prices only if yields cross 7.25% levels.

Retail inflation data, due on Tuesday, is expected to show prices rose to a 16-month high of 6.35% in March, well above the RBI's upper tolerance band for a third straight month, in part due to the sustained rise in food prices, a Reuters poll showed.

Traders said a sharp rise in inflation alongside continued upticks in global crude and commodity prices will raise bets for a June rate hike by the RBI. Crrently investors expect the RBI to shift its stance to neutral in June, followed by an actual rate increase in the August policy.

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