India Bond Yields Up This Week On High CPI, 10-Year Flat On RBI Buy

Friday,   18-Jun-2021   05:06 PM (IST)

Indian federal government bond yields settled higher this week following a sharp spike in inflation, while the benchmark yield ended little changed after heavy purchases from the Reserve Bank of India. The benchmark 5.85% bond maturing in 2030 ended at 98.88 rupees, yielding 6.01%, against 98.79 rupees and 6.02% yield, yesterday. The yield was unchanged this week as against a two-basis-point fall last week. Yields on 2026 and 2035 liquid notes rose by eleven and seven basis points. The Indian rupee was at 73.86 to the dollar, down 1.1% this week. India’s retail inflation accelerated to 6.3% in May from a year earlier, breaching the central bank’s upper tolerance ceiling of 6% for the first time since November, and up from 4.23% in April. Still, the rate-setting panel has some time to decide if an inflation spike will persist as demand remains tepid in a Covid-pummeled economy, Ashima Goyal, a member of the rate-setting panel told NewsRise, indicating a higher tolerance for sporadic pricing pressure to support growth. The RBI’s rate setting panel has held key interest rates steady at record lows since last year and reaffirmed its commitment to stay accommodative for as long as necessary to revive growth while ensuring inflation remains within target, going forward. The minutes of its June meeting are due today. India’s central bank, which aims for an orderly evolution of the yield curve, has been purchasing debt since last year to help absorb some of the federal government's elevated borrowing. Yesterday, the Reserve Bank of India bought around 346 billion rupees of federal government bonds under its quantitative easing programme, that includes 268 billion rupees of the benchmark paper. The central bank aims to buy debt worth 1.2 trillion rupees in the next quarter. The federal government aims to borrow 12.06 trillion rupees in this fiscal year, besides buying an additional 1.58 trillion rupees worth of bonds on behalf of states. It raised 320 billion rupees via sale of bonds today. Domestic bond yields also witnessed some selloff tracking similar moves in U.S. yields, after the Federal Reserve hinted at two possible rate hikes by 2023. The U.S. 10-year yield was at 1.49%, up three bps this week. The benchmark Brent crude oil contract was last trading at $72.62 per barrel, 0.1% lower this week. India imports nearly 85% of its crude oil requirements.