Govt bond yield at 2-month high

Government bond yields rose on Tuesday tracking a rise in the US Treasury yields, said dealers. The yield on the benchmark 10-year government bond settled 6 basis points (bps) higher at 7.12 per cent — highest since January 31, against 7.06 per cent on Thursday.

Money markets were shut on Friday on the occasion of Good Friday. Monday was a no trading day due to the beginning of the new financial year.

The yield on the benchmark 10-year US Treasury rose by around 14 bps to 4.34 per cent following the release of manufacturing data, indicating an unexpected increase in the Purchasing Manager’s Index (PMI) to 50.3 last month, marking its first expansion since September 2022.

Consequently, it weighed on the expectations of a rate cut in June by the US Federal Reserve. According to the CME Fedwatch tool, the rate-cut expectations in June fell below 50 per cent, against 70.1 per cent probability a week ago.

“The yields rose because of the rise in US yields. After the strong PMI data, US as well as China, the rate cut expectations in June (by US Federal Reserve) have gone down significantly,” said Vijay Sharma, senior executive vice president at PNB Gilts.

Market participants said the 7.12 per cent yield on the benchmark bond faced technical resistance and it might sustain as long as US yields do not surge further.

“There is resistance at 7.12 per cent level (yield on benchmark bond), it might reverse from there if the US yields don’t rise significantly from here,” said a dealer at a stateowned bank.

Three-day VRRR

The Reserve Bank of India conducted two three-day variable rate reverse repo (VRRR) auctions to drain liquidity from the banking system as the liquidity improved to a surplus of ~78,422 crore on Monday.

At the first three-day VRRR auction, banks parked ~32,105 crore, against a notified amount of ~1 trillion. At the second auction, banks parked ~21,325 crore against a notified amount of ~50,000 crore. Banks parked the funds at a weighted average rate of 6.49 per cent. Market participants eye the outcome of the Monetary Policy Committee scheduled to be released on Friday for further cues. The domestic rate-setting panel is likely to keep the repo rate unchanged at 6.50 per cent. They are also expected to retain the stance as “withdrawal of accommodation”.