The 10-year bond yields rose above 8% mark in the start of trade today for the first time since May 2015 amid concern over rise in inflation and fiscal deficit. The yield on 7.17% bonds due in January 2028 rose to 8.033% in early trade.
Later, the yields rally lost steam and the bond yield fell to 7.931% at 12:26 pm.
VK Vijayakumar, Chief Investment Strategist at Geojit said, "Even though RBI' s stance was neutral in the June policy, the market feels that there will be one more hike by 25bps this FY. The market is discounting this. The central bank had made it clear that the monetary response would be data dependent. The most crucial data is the crude price. We have reached a situation where the bond yields are directly correlated with crude. If crude goes up, bond yield goes up. Yesterday, crude went up by close to 2 dollars."
The rise in yields comes two days after the monetary policy committee raised repo and the reverse repo rate each by 0.25%. The 10-year bond yield closed at 7.917% rising 1.06% on June 6, the day when the central bank raised key rates.
On June 7, the bond yield closed at 7.993% rising 0.96%, taking the two-day gains since the RBI policy to nearly 2%. Meanwhile, the Indian rupee slipped in early trade today falling 34 paise to 67.46 per dollar compared to close of 67.12 level on Thursday. Retail inflation moved up to 4.58 per cent in April due to hardening in prices of cereals, meat, fish and fruits.
The inflation based on Consumer Price Index (CPI), a key data factored in by the Reserve Bank while deciding interest rate, was 4.28 per cent in March. The inflation was at 2.99 per cent in April last year. The CPI index had been declining since January this year. Inflation based on wholesale prices spiked to 3.18 per cent in April on increasing prices of petrol and diesel as well as fruits and vegetables.
The Wholesale Price Index (WPI) based inflation stood at 2.47 per cent in March and 3.85 per cent in April last year. Inflation in food articles was at 0.87 per cent in April 2018, as against a deflation of 0.29 per cent in the preceding month.
In the second bi-monthly monetary policy for the current fiscal, the central bank revised upwards the retail inflation range to 4.8-4.9 per cent in the first half of 2018-19, and 4.7 per cent in the second half.