Market participants also keenly await the minutes of the Reserve Bank of India's (RBI) latest monetary policy meeting, due later in the day. The 10-year benchmark 7.26% 2032 bond yield ended at 7.4249%, its highest since Nov. 7 and after closing at 7.3883% on Tuesday.
"(The) market is completely bearish now, with more rate hikes in the U.S., which will also see similar action from the Reserve Bank of India, and hence bond yields are adjusting upwards," said Raju Sharma, head of fixed income at IDBI Mutual Fund.
"We cannot rule out the benchmark bond yield edging towards the 7.50% mark."
U.S. Treasury prices slumped, with the 10-year yield hovering around the critical 4.00% handle on bets of further interest rate hikes in the coming months.
Strong economic data and hawkish comments from Federal Reserve officials have raised bets of higher rates for longer in the battle against inflation. The 10-year yield hit 3.97% earlier in the day, its highest level in over three months.
The Fed has raised the policy rate by 450 basis points (bps) to the 4.50%-4.75% range since March, with traders expecting another 75 bps worth of rate hikes till June.
The RBI raised the repo rate for the sixth consecutive time earlier this month, taking it to 6.50%, and kept the door open for more tightening. The central bank will increase interest rates by 25 bps to 6.75% in April and then pause until the end of 2023, according to a Reuters poll of economists, who flagged risks of the terminal rate going even higher.
Rate hike bets further cemented after the central bank sold
364-day Treasury Bills at the 7.26% cutoff yield, higher than
estimates, and also at levels last seen in November 2018.
(Reporting by Dharamraj Dhutia
Editing by Sonia Cheema)
