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India bond yields rise, U.S. Fed sparks fears of aggressive rate hikes

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MUMBAI — Indian government bond yields were higher on Monday, tracking a similar move in U.S. Treasury yields, as a hawkish Federal Reserve sparked off fears of aggressive rate hikes to tame inflation.

The benchmark 10-year government bond yield was at 7.2415% as of 0500 GMT. The yield had slumped seven basis points on Friday to end at 7.2173%. The new 10-year 7.26% 2032 bond yield was at 7.2368% after ending at 7.2049% on Friday. The Indian rupee dropped to record low of 80.1200 earlier in the day.

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On Friday, U.S. Federal Reserve Chair Jerome Powell signaled rates would be kept higher for longer to bring down inflation, which has led to concerns domestically over similar moves by the Reserve Bank of India (RBI).

“A 75 basis points move from the Fed in September could put tremendous pressure on the RBI to follow it with yet another 50 bps rate hike,” a trader with a brokerage said.

The RBI has hiked rates by 140 basis points in May-August and the next policy decision is due on Sep. 30.

“Fed commentary is a big sentiment dampener, and it has again negated the chances for the 10-year yield to fall below 7.20% currently,” a trader with a state-run bank said.

The 10-year U.S. Treasury yield rose to 3.11% earlier on Monday, while the two-year yield jumped to their highest levels in nearly 15 years.

Meanwhile, global oil prices stayed above $100 a barrel, stoking inflation fears, as India is a major importer of crude.

India’s consumer inflation has stayed stubbornly above 6% for seven straight months.

Intraday, traders will look out for bond sales by six Indian states that are scheduled to raise 140 billion rupees ($1.75 billion).

($1 = 80.0300 Indian rupees) (Reporting by Dharamraj Lalit Dhutia; Editing by Neha Arora)

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