The 10-year benchmark bond yield will stay between 7.20% to 7.45% with the markets having factored in the Reserve Bank of India’s (RBI) interest rate hike, according to market experts. 

The movement of the yield will follow  global cues and government bond supply in the domestic market, experts said.

“In the run-up to the RBI’s monetary policy, the bonds had rallied rising to 7.3%, the highest in the last three months. But for the future, the yields will depend on the supply of government bonds in the market and developments globally,” said the treasury head of a public sector bank.

The  3-year yield rose to 6.90%,while the 2-year treasury yield climbed to 6.64%. The 5-year bonds climbed  to  touch 7.03% on 5 August.

“The yields on the 10-year benchmark bond  will hover  around 7.5% till RBI’s next policy,” Bank of Baroda’s economists Aditi Gupta and Jhanvi said in their analysis.

 While a rate hike had already been priced in by the markets, the rate-setting Monetary Policy Committee’s (MPC) action signals a strong intent to tackle inflation and bring it back on track, suggesting further rate hikes.

US treasury yields also rose after favourable payroll data. The yield on the 10-year treasury  was at 2.83% and the yield on the 30-year treasury bond was up 10 basis points, while trading at 3.068% after stronger than anticipated payroll data.

The data showed non-farm payrolls increase 528,000 last month to surpass Dow Jones’ expectations of 258,000. At the same time, wage growth rose with average earnings climbing 0.5% for the month and 5.2% over last year. The stronger than anticipated report showed that the US is likely not in a recession, according to a CNBC report.

“The  global bond yields also witnessed a steady decline while crude prices fell below pre-war levels,” said Shrikant Chouhan, head of equity research (retail) at Kotak Securities. Decent 1QFY23 earnings print for domestic-facing companies also aided the market sentiment. Metals, autos, oil & gas and consumable fuels were the top performers in the week, while realty was the only major loser on a week-on-week basis.

HDFC Bank’s treasury economics research team said in a note that it  expects the RBI to continue with its rate hikes in the upcoming policies, taking repo rate up to 5.75% by the end of the year. 

“The bond market rally seen over the last few days is likely to reverse and we expect the 10-year paper to trade closer to 7.3-7.4% by the end of the quarter as markets reprice in RBI action and the supply of both SDL (state development loans) and central government bonds this year,” the note added.