Mumbai: The 10-year bond yield on Wednesday surged further by 9 basis points ahead of the consumer price index (CPI) -based inflation data due on 12 April.
At 9.40am, the 10-year bond yield was trading at 7.465%, compared to its previous close of 7.375%. Bond yields and prices move in opposite directions.
The government will issue Index of Industrial Production (IIP) data and CPI data on Thursday. According to a Bloomberg analyst estimates, CPI will be at 4.2% in March against 4.44% a month ago, and IIP to be at 7% for February, compared to 7.5% in January.
Traders were also worried due to continued selling pressure by state run lenders in the debt market and after crude oil prices surged past $70 a barrel. In the last four trading sessions, bond yield gained over 30 basis points.
According to Clearing Corp. of India data, state banks remained net sellers in six of the past eight days. State lenders have sold a net Rs16,460 crore of debt between 27 March-9 April.
Crude oil surged as markets eyed an escalation of Middle East tensions after Europe’s air traffic control agency warned of possible air strikes on Syria in the next 72 hours, Reuters reported.
“It was expected that the bond markets would consolidate after two sessions of profit booking and in the absence of near triggers till the inflation release at the end of the week,” said Edelweiss Finance in a note to its investors.
Yield on government bonds have softened for the past few days after positive announcement from government as well as the Reserve Bank of India (RBI).
On Thursday, the RBI lowered its inflation forecast. It now projects 4.5% CPI for fourth quarter of fiscal 2018. For first half of fiscal 2019, inflation forecast is 4.7-5.1% and for second half, forecast is 4.4-4.5%.
On 26 March, the government unexpectedly reduced its borrowing programme by around 48% of its budgeted bond sales in the first half. On 2 April, RBI allowed banks to spread its bond trading losses incurred during December 2017 and March 2018 equally over up to four quarters.
Traders are cautious as the Federal Open Market Committee releases minutes of its 20-21 March meeting on Wednesday, at which central bankers raised their target rate a quarter-point for overnight bank lending.