Bond yields spike as the US Fed raises rates

MUMBAI: On Thursday during the afternoon session, the yield on benchmark 10-year bonds spiked as the US Fed raised rates by 75 basis points and signalled more aggressive rate hikes in the future, dealers said.. The increase in yields on US Treasury notes was another factor contributing to the rise in yields.

The benchmark 10-year 6.54 percent-2032 bond yield was trading at 7.3611 percent during afternoon session, up from the 7.25 percent conclusion of the previous trading session. As opposed to closing on Wednesday at 7.2326 percent, the yield on notes with a 7.26 percent coupon until 2032 was trading at 7.3219 percent.

As predicted, the US Federal Reserve increased rates by 75 basis points and signalled additional increases. According to the Fed's latest forecasts, its policy rate will increase to 4.4% by year's end before peaking at 4.6% in 2023 to combat uncomfortably high inflation. Rate reductions won't likely occur until 2024.

Fed Chair Jerome Powell stated that the bank was prepared to exert some pressure on the economy and the labour market as a result of the necessity to adopt considerably more active steps to combat high inflation.

The benchmark 10-year US Treasury yield increased after the rate hike to 3.64 percent, its highest level since 2011, and the two-year yield on Thursday to a new 15-year high of 4.13 percent. The price of a barrel of Brent crude oil was USD 90.85 at the time.

RBI movement: To limit the impact on the currency and reduce inflation import, the Reserve Bank of India (RBI) is anticipated to boost rates by about 50 basis points.

There could be some impact on Indian GDP if RBI is forced to match the interest rate rises given that the Fed is projected to continue hiking rates in the meetings in November and December by 75 basis points and 50 basis points, respectively.

The RBI might respond by raising rates while also boosting liquidity, which would assist growth. "Despite anticipated rate increases, India's GDP and corporate profitability should remain in very favourable territory. FIIs will certainly continue to find this appealing, "said OmniScience Capital CEO and investment strategist Vikas Gupta.

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