The 10-year government bond yield rose 7 basis points on Friday after India's consumer price inflation hit nearly eight-year high, suggesting faster tightening by the Reserve Bank of India. Higher crude oil prices and US treasury yields also weighted on bonds.
At 9.45am, the 10-year bond yield was trading at 7.32 percent, up 8 basis points from its previous close of 7.26 percent. Bond yields and prices move in opposite directions.
India's CPI accelerated for a seventh month to the fastest since May 2014 on higher fuel and food cost, spurring expectations that the central bank will raise rates further to tame inflation. CPI increased 7.79 percent in April as against an estimate of 7.42 percent predicted in a Bloomberg survey of economists and 6.95 percent the previous month.
Food inflation rose to 8.1 percent in APril from 7.5 percent in March, despite a high base earlier. A measure of core inflation that includes transportation fuel rose to 7.3 percent in April from 6.5 percent in March.
"Considering further pipeline risks by way of spillover of imported price pressures, increase in fertiliser prices (impact partly offset by hike in subsidies), and impact of inclement weather (heatwave), among others, May inflation is likely to stay on the former end of 6.5-7 percent range, propping the FY1H average," said Radhika Rao, senior economist at DBS Bank.
"In anticipation of this firm reading and to front-run US FOMC’s hike in May, the RBI MPC raised the repo rate by 40 basis points in an off-cycle move last week. We expect a further 40 bps hike in June, as part of the 150bps hike projected for 2022," Rao said.
Fed chair Jerome Powell meanwhile reaffirmed that the US central bank is likely to raise interest rates by a half percentage point at each of its next two meetings, while leaving open the possibility it could do more. Analysts said this statement has calmed concerns that a tightening monetary policy would hurt the US economy.
US Consumer prices jumped 8.3 percent last month from 12 months earlier. That was below the 8.5 percent year-over-year surge in March, which was the highest rate since 1981.