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MUMBAI — Indian government bond yields ended higher for a fifth consecutive session on Tuesday, as investors brace for an aggressive interest rate hike by the U.S. Federal Reserve.
The benchmark Indian 10-year government bond yield ended at 7.2941%, highest since Aug. 10, after closing at 7.2769% on Monday. The yield has risen 18 basis points (bps) in the last five sessions. The 10-year 7.26% 2032 bond yield ended at 7.2645%, against 7.2359% on Monday.
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“Bond markets are waiting for the Federal Reserve policy decision and if there is hawkish move, we can see further upside in yields, as that will have an impact on the RBI’s policy decision,” said Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Fincap.
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The benchmark 10-year U.S. Treasury yield had risen to its highest level since 2011 on Monday, as investors adjusted for the prospect that the Fed will hike rates higher and for longer than previously expected.
The two-year yield, which typically reflects interest rate expectations, stayed closer to its highest level since November 2007.
The Fed policy decision is due on Wednesday, with markets pricing in a 19% probability of a 100 bps hike.
The Reserve Bank of India’s policy decision is on Sept. 30, and many participants expect another 50 bps rate hike, to control stubbornly high inflation that has remained above the central bank’s upper tolerance band for eight months.
The central bank has raised interest rates by a total of 140 basis points between May and August.
Meanwhile, sentiment is also impacted by the lack of any visible progress on the inclusion of Indian bonds in global indices.
Indian bond yields are expected to remain in a narrow range this year as their inclusion in global indexes may not materialize in 2022, a rates strategist with HSBC said.
“Our base case is that index inclusion is likely to be delayed to next year,” Himanshu Malik, Asia-Pacific rates strategist, HSBC, told Reuters, adding that he expects yields to rise next year. (Reporting by Dharamraj Lalit Dhutia; Editing by Savio D’Souza)
