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India Bond Yields Turn Higher Ahead Of Debt Auction Result

Friday,   31-Jul-2020   01:26 PM (IST)

Indian government bond yields turned higher and looked set for a third consecutive weekly rise, even as traders awaited the result of a debt auction that includes a new 10-year paper. The benchmark 5.79% bond maturing in 2030 changed hands at 99.65 rupees, yielding 5.84% at 1:00 p.m. in Mumbai against 99.72 rupees and 5.83% yesterday. The Indian rupee was at 74.78 to the dollar against 74.84 in the previous session. New Delhi is selling bonds worth at least 300 billion rupees today, which includes 180 billion rupees of a new 10-year paper. This note will replace the existing benchmark bond in the coming weeks. A NewsRise poll has pegged the cutoff for the note at 5.76%. It was traded at 5.75% in the ‘when issued’ segment. Meanwhile, market participants are now tilting towards a rate cut at the monetary policy meeting on Aug. 6, after initially expecting a pause due to rising inflation. The nation’s Monetary Policy Committee may prefer to cut interest rates to boost economic activity but any unconventional measure may follow only in the second half of the year to support the government’s funding needs, according to economists. A spike in retail inflation to 6.09% in June had led to calls that the MPC may hold rates in August, while State Bank of India expects the authority to maintain a pause. The government has hiked its annual market borrowing for this year by 54% to a record-high 12 trillion rupees and is widely expected to go in for another round of additional borrowing in the second half amid a slump in revenue due to the coronavirus pandemic, which has severely dented economic activity. The RBI must use ways other than direct monetisation of debt to aid the government’s borrowing programme amid the coronavirus pandemic, Morgan Stanley has said. Instead, the brokerage prefers sizable open market purchases and more short-term funding options for the government. India is the third worst-hit country by the virus, with cases at 1.64 million. Lockdowns have been relaxed but several activities continue to be hampered. Meanwhile, crude oil prices rose after falling to three-week lows yesterday, weighed down by a record decline in U.S. economic growth. The benchmark Brent crude oil contract was 0.7% higher at $43.24 per barrel. India imports nearly 85% of its crude oil requirements.