Government Securities (G-Secs) yields jumped on Monday, with yield of both the old and new 10-year G-Secs rising about 5-6 basis points, in the backdrop of high retail inflation, anxiety that the government’s borrowing programme could be large in FY23 and rising US Treasury yields.

Yield of the old 10-year G-Sec/GS (coupon rate: 6.10 per cent) was up about 5 basis points, with its last traded yield (LTY) being 6.6360 per cent (previous LTY: 6.5816 per cent).

This paper’s last trade price (LTP) was ₹ 96.27, down 37 paise vs-a-vis previous LTP of ₹96.64. Bond yields and prices are inversely co-related and move in opposite direction. 

Yield of the new 10-year GS (6.54 per cent) was up about 6 basis points, with its LTY being 6.6188 per cent (previous LTY: 6.5579 per cent).

Prices down

This paper’s LTP was ₹99.43, down 44 paise vis-a-vis previous LTP of ₹99.87.

Retail inflation (year-on-year) for the month of December 2021 edged up to 5.6 per cent from 4.9 per cent a month ago. 

Also read: Should you be worried about rising bond yields?

Madan Sabnavis, Chief Economist, Bank of Baroda, said: “I think, yields will continue going up until the Union Budget is announced. The market feels that inflation is high, interest rates should be increased. RBI has not done anything so far.

“...Next year’s Budget may also involve lot of borrowing. Of course, the numbers and all that are not known. So, that is the reason why the yields are going up.”

He noted that the Federal Reserve is saying that they are worried about inflation. This means there could be two or three hikes this year in the US.

“That itself spreads contagion to all the other markets. Therefore, the yields start going up. So, I think, it is more sentiment driven,” opined Sabnavis. 

Meanwhile, in an article on the ‘State of the Economy’ in the Reserve Bank of India’s latest monthly bulletin, central bank officials noted that bond yields ruled higher, with the 10-year G-sec (old) yield hovering at near two-year high levels and closing at 6.58 per cent on January 14.

The authors observed that global cues -- indication of a faster reversal of accommodative stances by major central banks (such as the unexpected hike by the Bank of England), rise in US treasury yields and higher crude oil prices -- dented sentiments and pushed up yield levels.

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