The 10-year benchmark 7.26% 2032 bond yield ended at 7.4449%, after closing higher at 7.4547% on Wednesday.
“Any major movement may be witnessed only in the next week, which would see reactions on multiple (economic) data points,” a trader with a primary dealership said.
These data points include the U.S. non-farm payroll data on Friday as well as U.S. and India inflation data next Tuesday.
U.S. Treasury yields have been elevated after data showed the labour market remained tight and Federal Reserve Chair Jerome Powell set the stage for higher and faster interest rate hikes.
The inversion between the two-year yield, a closer indicator of rate expectations, and the 10-year yield stayed above 100 basis points (bps).
After Powell’s comments on Tuesday, Fed funds futures have priced in a more-than-68% chance of a 50 bps rate hike, potentially as soon as the next policy announcement on March 22. The Fed has raised rates by 450 bps over the last year and the market has fully factored in an additional 100 bps increase over the coming months.
The Fed’s continued hikes could force the Reserve Bank of India, which has raised rates by 250 bps this financial year, to follow suit.
But the uncertainty over rate hikes, along with bets of tightening liquidity deficit led to the 364-day treasury bill yield rising above the 10-year yield on Wednesday.
“The inversion happened due to higher-than-expected cutoffs on treasury bills sales, which in turn, was triggered by deficit in the liquidity in the banking system,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
“This declining trend in liquidity and inversion of the yield curve is likely to continue for some more time.”
