October heat

The yield on the new 10-year benchmark government security (G-sec; 7.18% GS 2033) opened October at 7.23% and closed at 7.35%, up 14 bps from its September closing of 7.21% and outside CRISIL’s forecast range of 7.23-7.33%.

In the first week, bonds traded largely with a negative bias due to a surge in US-Treasury (UST) yields and crude oil prices. In addition, the Reserve Bank of India (RBI) hinted at open market operations (OMO) sales in future to manage liquidity in the market. This led the yield on the 10-year benchmark G-sec to harden by 14-15 bps. The domestic 10- year benchmark yield closed the week at 7.34%.

The second week started on a negative note, tracking a surge in crude oil prices amid geopolitical tensions in the Middle East and due to likely OMO sales. India's retail inflation printed at a three-month low of 5.02% in September on the back of softer vegetable prices. However, as the week progressed, the bond market witnessed a softening in yields due to a decline in UST yields. The 10-year benchmark yield slipped and closed the week at 7.32%.

In the third week, UST yields touched 5% for the first time since 2007 following strong economic data, which renewed fears that US interest rates may stay elevated for longer. Crude oil prices also remained high amid concerns that the Middle East conflict will spread through the region and cause supply disruptions. The domestic benchmark yield closed the week at 7.36%.

In the fourth week, a decline in UST yields supported domestic yields. In addition, bond yields softened further owing to better-than-expected cut-off prices at the weekly auction. The domestic 10-year benchmark yield closed the week at 7.35%