Yields of Government Securities (G-Secs) surged on Tuesday, tracking spike in US Treasury yields, which rose on Federal Reserve Chairman Jerome Powell’s remarks indicating a more aggressive tightening of monetary policy, and also fears of domestic inflation going up due to hike in petrol and diesel prices.

Yield of the 10-year benchmark G-Sec (coupon rate: 6.54 per cent) rose about 5 basis points and closed at 6.8311 per cent (previous close: 6.7817 per cent).

Price of the aforementioned paper fell about 35 paise to close at ₹97.93 (₹98.275). Bond yield and price are inversely co-related and move in opposite directions.

Marzban Irani, CIO - Fixed Income, LIC Mutual Fund, said that G-Sec prices fell because of hints that the US Fed could hike interest rates by 50 basis points at its next meeting and the possible inflationary effect of the increase petrol and diesel prices.

Petrol and diesel prices were upped on Tuesday by 80 paise per litre after a gap of four-and-a-half months.

Yield of the 9-year G-Sec (coupon rate: 6.10 per cent) was up about 4 basis points and closed at 6.8637 per cent (previous close: 6.8188 per cent).

Price of the aforementioned paper fell about 30 paise to close at Rs 94.80 (Rs 95.095).

India’s growth forecast

Meanwhile, Fitch has lowered its growth forecast for India for FY2022-23 to 8.5 per cent (from earlier forecast of 10.3 per cent) on sharply higher energy prices.

The global rating agency expects inflation to remain elevated throughout the forecast horizon, at 6.1 per cent annual average in 2021 and 5 per cent in 2022.

“The monetary policy normalisation has been very shallow to date. The Reserve Bank of India has prioritised the economic recovery over tackling inflation amid a still-large output gap.

“We still expect the repo rate to rise to 4.75 per cent by December from 4 per cent currently. The reverse repo rate – which has become the effective driver of money market rates since the start of the pandemic – is likely to be increased by a larger amount,” Fitch said.