Indian government bond yields were higher on Thursday after Federal Reserve Chair Jerome Powell said the central bank will deliver more rate hikes for a longer period to fight inflation.
The benchmark 10-year yield was at 7.2360%, as of 10:00 a.m. IST after closing at 7.2218% on Wednesday. The yield had dipped 8 basis points in last three sessions.
The Fed will deliver more hikes next year even as the economy slips towards a possible recession, Powell said on Wednesday, after announcing a rate hike of 50 basis points.
The scope for Indian bond yields to break the 7.20% level on the downside can be safely ruled out for the near term, a trader with a private bank said, adding the "benchmark note may slip into discount before tomorrow's supply."
Powell's commentary that recent signs of slowing inflation have not brought any confidence yet surprised markets, which expected a dovish tilt after U.S. inflation climbed 7.1% in NOvember, its smallest advance since December 2021.
The U.S. two-year yield, which is a closer indicator of interest rates, rose above 4.25%, while the 10-year yield rose above 3.50%.
New Delhi will aim to raise 300 billion rupees ($3.63 billion) through sale of bonds on Friday, which includes the sale of a new 14-year bond. The note was bid at a yield of 7.39% at the when-issued segment.
Even as the Fed is expected to raise rates above 5%, most market participants do not expect the Reserve Bank of India to hike repo rate beyond 6.50%.
The RBI raised rates by 225 bps in May-December to 6.25% to control inflation which had stayed above the 6% upper tolerance level of the central bank in January-October, before easing to 5.88% in November.