India Bond Yields Up As Inflation Quickens, Debt Sale Result Eyed

Friday,   14-Aug-2020   01:21 PM (IST)

India's federal government bond yields were higher in the afternoon session, as an above-expected inflation print dented bets of policy rate cuts in the coming months. Market sentiment was also affected as a weekly bond sale added to supply, and traders now await the auction cutoffs for immediate cues. The benchmark 5.79% bond maturing in 2030 changed hands at 98.91 rupees, yielding 5.94%, at 1:00 p.m. in Mumbai, against 99.21 rupees and 5.90% yesterday. The note had fallen to 98.77 rupees earlier today, its lowest since issuance on May 8, with the yield rising to 5.96%, the highest since Jun. 3. The Indian rupee was at 74.83 to the dollar against 74.84 yesterday. The federal government will sell at least 300 billion rupees of bonds today, including 180 billion rupees of the new 10-year 5.77% 2030 bond. The note was last at 98.95 rupees, yielding 5.91%. New Delhi will also switch notes worth up to 280 billion rupees on Aug. 17, and will issue the benchmark note in this auction.  India’s retail inflation rate accelerated to 6.93% in July from a year, beating the 6.15% median forecast in a Reuters survey of economists and the 6.23% revised reading for June. Core inflation rose to 5.87% from 5.33% in June, according to ANZ. India's rate-setting Monetary Policy Committee, which left policy rates intact last week citing inflation risks, is mandated to target inflation at 4%, with tolerance levels stretching to two percentage points on either side. India's economy is expected to shrink this year, and New Delhi has hiked its annual borrowing target to a record high of 12 trillion rupees due to the coronavirus pandemic and the months-long lockdown. The total cases in the country stand at 2.46 million, with over 48,000 deaths so far. Barclays expects the economy to shrink by 6% this year, wider than an earlier forecast of 3.2% in June. Meanwhile, the central board of the Reserve Bank of India is expected to meet today to discuss the transfer of its surplus to the government. The government has budgeted 600 billion rupees as dividend from the central bank for this year. Market participants expect a dividend of around 600 billion rupees to 700 billion rupees. The benchmark Brent crude oil contract was 0.3% down at $44.85 per barrel, after falling over 1% yesterday. India imports about 85% of its crude oil requirement.