Govt bond yields hit 3-week high at 7.16% on US rate concerns

economictimes.indiatimes.com:

bond yields jumped to a three-week high Friday, pushing up borrowing costs in the broader economy, as concerns over US interest rates remaining at elevated levels and apprehensions over hardening domestic price pressures soured the view on sovereign debt. Yield on the 10-year benchmark bond settled at 7.16% on Friday, four basis points higher than its previous close and the highest closing level since July 7, Bloomberg data showed. Bond prices and yields move inversely.

One basis point is 0.01 percentage point. Given that government bond yields are the benchmarks used to determine pricing of corporate borrowing, the recent market activity makes it dearer for firms to raise funds through bonds. «The scales seem to be now tipped in favour of a further increase in the India domestic 10-year yield and we see the path above 7.20% clearing out.

We expect a range of 7.10-7.25% in the near-term with the balance of risks tilted towards the higher end of this range,» HDFC Bank's treasury research team wrote. The selloff in the domestic market came on the heels of a sharp jump in US bond yields after data released after Indian trading hours on Thursday showed unexpectedly strong economic growth in the world's largest economy. The data, which showed that the US economy grew 2.4% annually in April-June, strengthens the case for the Federal Reserve to maintain tighter monetary policy.

Yield on the 10-year US bond climbed as much as 13 basis points on Thursday before easing marginally on Friday. Higher US yields reduce the appeal of fixed-income assets in emerging markets such as India for global investors. Foreign portfolio investors' holdings of government debt in the general category have reduced by '3,154.48 crore since March 31,