10-year G-Sec yield touches 7.50%, a 40-month high

Government Securities (G-Secs) yield rose on Monday, with yield of 10-year G-Sec closing at the highest level since February 2019, amid concerns that the Reserve Bank of India (RBI) may again revise its retail inflation forecast for FY22 even as global crude oil continued to rule high at around $120 a barrel.

Yield of the benchmark 10-year G-Sec (coupon rate: 6.54 per cent) rose about 4 basis points to close at 7.50 per cent (previous close: 7.46 per cent). Price of this security declined 28 paise to close at ₹93.50 (₹93.78).

Bond yields and prices are inversely co-related and move in opposite directions.

Inflation concerns

With there being no let-up in the Russia-Ukraine war, generalised hardening of global commodity prices, including crude oil prices and, supply chain disruptions are imparting significant upside risks to inflation globally.

So, there is a possibility that RBI may revise its retail inflation upwards, say bond market experts.

RBI had upped the FY2022 retail inflation projection to 5.7 per cent in the April monetary policy review against its earlier projection of 4.5 per cent.

Retail (consumer price index/CPI-based) inflation has been ruling at or over the monetary policy committee’s upper tolerance limit of 6 per cent since the beginning of 2022.

The January 2022 inflation reading came in it at 6 per cent. Thereafter, it has been north-bound — February (6.1 per cent), March (7 per cent) and April (7.8 per cent).

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said while the bond market has discounted 40-50 basis points hike in the repo rate at the upcoming monetary policy review, there is worry that there may be an upward revision in retail inflation projection for FY22 to reflect the ground realities.

Yield of the 4-year G-Sec (coupon rate: 5.74 per cent) rose about 5 basis points to close at 7.27 per cent (previous close: 7.22 per cent). Price of this security declined 17 paise to close at ₹94.29 (₹94.46).

Published on

June 06, 2022