Jumpy June

The yield on the 10-year benchmark government security (G-sec; 7.26% GS 2033) opened June at 6.98% andclosed at 7.11%, up 12 basis points (bps) from its May close of 6.99% and just outside CRISIL’s forecast rangeof 7.00-7.10%.

The first week saw bond yields harden tracking a surge in United States (US) Treasury yields and crude oilprices. Oil prices rose after Saudi Arabia announced an additional voluntary cut of 1 million barrels per day inoil output from July, over and above the extended cut by OPEC+ into 2024. Domestic bond yields rose furtheras the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) opted for a ‘hawkish’ pause at the Junepolicy meet, leaving the repo rate unchanged at 6.5%. The 10-year benchmark closed the week at 7.04%.

In the second week, bonds largely traded in a narrow price range. Domestic inflation printed at 4.25% for May,lower on-month. On the global front, inflation in the US printed at 4%, the lowest in two years. The 10-year USTreasury yield hardened 2 bps to close the week at 3.77% as the US Federal Reserve opted for a hawkish pauseat its June policy meet. The 10-year benchmark paper closed at 7.03%.

G-secs witnessed volatility in the third week owing to the US Fed’s hawkish comments on further rate hikesand hawkish minutes of the MPC meeting. The 10-year benchmark paper closed at 7.07%.

In the fourth week, yields hardened tracking the surge in US Treasury yields and crude prices. The 10-yearUS Treasury yield hardened 9 bps to close the week at 3.81% as stronger-than-expected US gross domesticproduct (GDP) print for the January-March quarter and jobs data intensified fears of rate hikes by the US Fed.The 10-year benchmark paper closed at 7.11%. In the Treasury bill (T-bill) calendar released during the week,the borrowing amount for T-bills has been reduced from Rs 32,000 crore per week to Rs 24,000 crore per weekfor this quarter. This will ease the pressure on T-bill yields.