U.S. Treasury yields tick higher as global bond rout slows

Mumbai: Indian government bonds are set to experience a significant decline on Friday, mirroring the sharp rise in US Treasury yields. The 6.94% 2036 bond yield is predicted to fluctuate between 7.10% and 7.15% until the debt auction, according to a trader from a primary dealership. On Thursday, the yield had closed at 7.1067%. New Delhi plans to sell benchmark paper worth 340 billion rupees ($3.54 billion) later in the day.

The trader stated that it will be a "blood bath today," testing the confidence of bulls. US Treasury yields have surged, exacerbating the debt's recent decline, as remarks from Federal Reserve officials about the necessity of conducting additional rate hikes have fueled expectations of such a move in October-December. The 10-year Treasury yield reached its highest level in almost two decades, while the 30-year yield hit its highest level since 2004.

Currently, traders believe there is a 67% chance of another rate increase in October, and a 57% probability that the rate would be raised again in December, as indicated by CME Group's FedWatch Tool. The Federal Reserve raised rates for the first time since 2023 last week to curb inflation. Oil prices remain high, with the benchmark Brent crude contract trading near $105 per barrel.

Markets are closely watching the possibility of a truce between the US and Iran. India relies on importing nearly 90% of its crude oil needs, making it highly sensitive to shifts in global oil prices. Elevated prices have heightened inflation concerns and heightened expectations of a domestic rate increase. Rate hike forecasts have solidified after August retail inflation reached 4.82%.