Govt bond yields log sharpest single-day surge for this year

Mumbai: Government bond yields surged on Thursday, registering their sharpest single-day rise in 2023, as higher crude oil prices, uncertainty over US interest rates and technical difficulties due to sudden changes in trading holidays sent participants rushing to sell securities.

Higher sovereign bond yields drive up overall borrowing costs in the economy as government securities are the benchmarks used by corporate entities to determine the pricing of their debt issuances.

The government bond market on Thursday witnessed its worst selloff in 10 months, with yield on the 10-year benchmark government bond shooting up 7 basis to close at 7.24%. Thursday's rise in yields was the largest single-day jump since November 2022.

Bond prices and yields move inversely. Thursday's closing level marks the highest for a 10-year bond yield since April.

Late Wednesday, the Reserve Bank of India said that with the government of Maharashtra having declared September 29 as a public holiday under the Negotiable Instruments Act, the public holiday which was declared on September 28 stands cancelled. The central bank said that it had now been decided to keep the bond market open on September 29 too as against an earlier scheduled holiday.

Consequently, a primary auction of government bonds worth ₹39,000 crore was brought forward to Thursday, with bond supply hitting the market sooner than expected. Usually, primary government bond auctions take place on Fridays.

"Part of the selloff is because the auction got preponed. It wasn't so much the holiday change but largely driven by higher crude oil prices and the fact that US Treasury yields are up and there is a gamut of US Fed speakers who are scheduled to talk over the next few days which is weighing on the market," said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.

"I think it's temporary - the 10-year yield at 7.25% should find some support," Pawar said, providing an estimate of 7.15-7.25% for the 10-year bond yield in coming days, which implies room for the benchmark yield to soften.

After Indian market hours, US Fed Chair Jerome Powell is scheduled to speak at a Town Hall on Thursday. Domestic traders await any cues on future interest rate hikes in the US, especially after the Fed earlier this month signalled more monetary tightening in the world's largest economy. US 10-year bond yields climbed to a 16-year high on Wednesday, surging past the 4.60% mark.

Higher US bond yields reduce the appeal of fixed-income assets in emerging markets such as India, leading to capital outflows and potentially causing the local currency to weaken versus the dollar.