Bond yields surge: The government bond yields experienced a major surge on Friday, marking their most substantial single-day increase in six months, in tandem with US yields. This rise followed heightened inflation levels, reinforcing doubts regarding potential interest rate cuts in the near future. The benchmark 10-year yield concluded at 7.1794 per cent, its highest level since January 24, after finishing the previous session at 7.1112 per cent.

The surge represents the strongest single-session rise since October 6, coinciding with discussions by the central bank regarding the utilisation of open market bond sales to regulate liquidity. Over the week, the yield rose by six basis points, following a seven bps increase in the first week of the fiscal year.

Madhavi Arora, lead economist at Emkay Global, commented, "The third consecutive high inflation report in the US has fundamentally altered expectations concerning both the extent and timing of rate cuts in 2024. We maintain the view that the Fed will refrain from cutting rates this year."

US yields ascended to levels witnessed five months ago following the release of inflation data surpassing expectations. The two-year yield, closely watched for rate expectations, surpassed five per cent, while the 10-year yield nearly reached 4.60 per cent, sustaining multi-month highs.

The recent inflation figures, coupled with robust US non-farm payrolls data from the previous week, have diminished the likelihood of a rate cut in June and reduced expectations for rate cuts throughout 2024, as per the CME FedWatch tool.

A trader from a primary dealership remarked, "Currently, the market is pricing in a 42 bps rate cut in 2024, suggesting the initiation of an easing cycle in November. However, a single adverse data point could reduce these expectations to 25 bps."

Traders eagerly anticipate India's consumer price inflation data, expected to be released later in the day. Projections suggest a decrease to a five-month low of 4.91 per cent in March from 5.09 per cent in February, according to a Reuters poll.

(With Reuters inputs)