Government bond yields edge higher on OMO sales, Fed rate bets

Mumbai - Government bond yields climbed higher on Tuesday following the central bank's announcement of bond sales in the shorter duration segment on Friday, which added more supply to the bond market. Retail inflation hitting a 20-month peak also contributed to the rise in yields, as it suggested a potential rate increase as early as next month, according to CCIL data.

The 10-year benchmark bond yield climbed by 7 basis points to 7.07%, while the five-year bond yield increased by 17 basis points to 6.79%, the data showed. Global bond yields also tightened up, with the 10-year US Treasury bond hitting a level above 5.02% on Tuesday, marking its highest point since 2007, as reported by Reuters.

A continued pressure on yields is expected to persist until the US Federal Reserve's Federal Open Market Committee meeting scheduled for Wednesday, during which Chair Kevin Warsh might announce a rate hike. The previous high for the 10-year yield was 7.14%, acting as a resistance point. If the yield surpasses this threshold, a range of 7.20%-7.25% could be possible.

Apart from expectations of a Fed rate increase, other factors that could trigger this movement include additional OMO (Open Market Operations) sales or a significant supply of state government bonds, as Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, explained.