Bonds surge: Government bond yields in India experienced an early uptick on Thursday, mirroring the trend observed in their US counterparts. 

The sentiment was influenced by remarks from Reserve Bank of India Governor Shaktikanta Das regarding inflation. As of 10:00 am, benchmark 10-year yield stood at 7.1716 per cent, a slight increase from its previous close at 7.1642 per cent.

Earlier in the week, yields had seen a decline following a drop in core inflation to a four-year low of approximately 3.8 per cent in December. Some economists had speculated about the possibility of a shift in the policy stance to 'neutral' in February. 

However, Governor Das stressed the need for India's monetary policy to remain actively disinflationary despite the decrease in core inflation.

Das stated in an interview with Reuters at the World Economic Forum in Davos, “When inflation is still above 5.5 per cent, rather close to 6 per cent, our monetary policy has to remain actively disinflationary, and it would be too premature to talk in terms of a pivot.”

A trader from a private bank noted, "With the 10-year US yield comfortable above the 4 per cent mark, it would be difficult for local bond yields to come down." 

The governor's comments extinguished hopes of an early shift in stance that had risen after the softer core inflation data.

US yields increased on Wednesday, driven by stronger-than-expected US retail sales and an unexpected rise in UK inflation in December. This development suggested that interest rate cuts might not be as aggressive as initially estimated. 

The 10-year US yield reached a five-week high of 4.13 per cent, while the two-year yield, a key indicator of interest rate expectations, rose 20 basis points in two sessions through Wednesday to around 4.35 per cent.

Traders adjusted their expectations for a rate cut by the Federal Reserve to approximately 61 per cent, down from 68 per cent the previous Tuesday, according to the CME's FedWatch Tool.

(With Reuters Inputs)