Bond yields signals aggressive RBI rate hikes

India's benchmark 10-year bond yield today rose to its highest levels in three years, ahead of RBI policy announcement due tomorrow. 

India's benchmark 10-year bond yield rose to 7.53%, the highest since March 2019, up 4 basis points from its previous close. 

Bond yields are inversely related to yields. After raising its key lending rate or the repo rate by 40 basis points last month, the RBI is widely expected to sharply hike the rate again tomorrow.

Rising yields indicate that traders expect the RBI to take sharply increase the repo rate going ahead. Economists expect the Reserve Bank of India (RBI) to hike policy rates by 40-50 bps on 8 June.

Many banks have already raised repo-linked and the marginal cost of funds-based lending rates (MCLR) since RBI's surprise rate hike in May, leading to an increase in borrowing costs for retail customers.

Apart from quantum of rate hike, market observers will also be keenly watching RBI's comments on growth and inflation, with oil prices surging above $120 a dollar.

A fund manger said that the market is expecting rate hike by 40-50 bps tomorrow and any smaller rate hike will be a positive surprise, and short-term bond yields may soften marginally.