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Yield hits 2-year high as RBI mops up liquidity, US Treasuries surge

The US 10-year treasury yield rose to a two-year high of 1.808 per cent following a mixed jobs report and as investors start pricing in earlier-than-expected rate hikes by the US Federal Reserve.

By: ENS Economic Bureau | Mumbai |
January 11, 2022 1:11:33 am
The rupee strengthened to its highest level of 74.03 against the dollar in nearly two months aided by capital inflows.

The benchmark 10-year bond yield on Monday rose by five basis points and hit a fresh two-year high of 6.59 per cent as it tracked an uptick in US Treasury yields and global crude oil prices. The rupee strengthened to its highest level of 74.03 against the dollar in nearly two months aided by capital inflows.

The US 10-year treasury yield rose to a two-year high of 1.808 per cent following a mixed jobs report and as investors start pricing in earlier-than-expected rate hikes by the US Federal Reserve. Crude prices surged by 5 per cent amidst supply constraints despite concern on the spread of Omicron variant.

With Monday’s rise, highest since January 2020, the benchmark bond yield in India has risen 22 basis points in the last one month and 71 basis points in the last one year amid indications that the RBI is likely to reduce liquidity in the system to tackle inflation. Further weighing on market sentiment is the RBI’s intermittent OMO sales in the secondary market (Rs 15,500 crore since late October). The devolvement of the 5-year bond (5.74% GS 2026) further confirmed the rising stress.

Meanwhile, the rupee surged 29 paise to close at 74.05 against the US dollar on Monday amid robust buying in domestic equities.

FPIs return, Nifty crosses 18,000

Mumbai: Domestic stock markets on Monday rallied by over one per cent despite the rising Covid cases in the country. With foreign investors back in the ring, the benchmark Sensex shot up by 651 points to 60,395.63 and the NSE Nifty index crossed the 18,000 level to close with a gain of 191 points at 18,003.30.

All the indices ended in green with capital goods, realty and banking remaining the top gainers. The broader markets too participated and gained in the range of 0.8- 1.3 per cent. Markets are showing tremendous resilience amid the rising Covid cases and the focus would now shift to the earnings season. Besides, key macro data such as IIP and CPI would also be on investors’ radar. Amid all, global cues would continue to induce volatility. We’re now eyeing 18,100+ zone in Nifty. Apart from banking, participants should focus on metal, energy and select auto counters for long positions,” Ajit Mishra, VP-research, Religare Broking.

World stocks stumbled again on Monday while the 10-year Treasury yield hit a two-year high as bets that the US Fed could raise interest rates as soon as March led investors to pare risky assets.

By 1523 GMT, the Dow had shed 1.4 per cent, the S&P 500 had lost 1.80 per cent, and the Nasdaq Composite had slumped 2.4 per cent. The pan-European STOXX 600 index sagged 1.51 per cent and MSCI’s gauge of stocks shed 1.40 per cent, as per a Reuters report.

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