Bond Yields Hit Multi-Year Highs, Watch For 7.60% Levels Says Expert

Bond yields surged on Wednesday as the RBI announced a sudden hike in interest rates. The 10-year benchmark 6.54%-2032 bond yield ended at 7.3783%, against the 7.12% close in the previous session.

According to Vishal Amarnani, Head of Fixed Income, Emkay Wealth Management, the next levels to watch out for is 7.60%.

"As mentioned earlier, we are closing watching the 7.35 level on the 10-year benchmark. The level was taken today due to a surprise hike in the Repo rates by the RBI. The next technical level to watch out for is 7.60 if the closing is above the 7.35% level.

By hiking the CRR, RBI is forcing the banking system to hold additional liquidity in reserves rather than lending it at lower rates to businesses. Around Rs. 80,000 cr will be not available wef May 21, 2022, for lending from the banking system. The current liquidity in the system is approx Rs 7 lakh crores and the cost of funds is likely to go up. We see all the incremental lending across the tenor going up post move by the RBI."

Overall, it is likely that bond yields would be firm as the markets are now anticipating another hike in June. The quantum of hike, if any, would be interesting to watch.

"10 year yields reacted heavily and reached close to 7.40 and we may see more hardening since fresh supply may also come soon. Sucking of liquidity through CRR is very hawkish and it opens up room for RBI to do OMO's," Abhishek Goenka , Founder IFA Global.