India Bond Yields Turn Higher On Profit-Taking Ahead Of Debt Sale

Thursday,   23-Jun-2022   01:14 PM (IST)

India’s federal government bond yields reversed an early fall and were trading higher on profit-booking ahead of a fresh supply of debt tomorrow, offsetting the drop that was triggered by a decline in U.S. Treasury yields and oil prices. The benchmark 6.54% bond maturing in 2032 changed hands at 94.13 rupees, yielding 7.41%, as of 1:00 p.m. in Mumbai today, and against yesterday’s close of 94.20 rupees, yielding 7.40%. The 10-year yield fell to 7.36% earlier today, its lowest since May 30. The Indian rupee was at 78.27 to the dollar against a record low of 78.39 in the previous session. “Benchmark yield is not sustainable below 7.40% and hence we saw major reversal after initial few trades,” a trader with a private bank said. “There is also a fresh short position build-up ahead of tomorrow’s debt sale and even oil seems to have steadied around $110 per barrel.” Bond yields dropped as U.S. Treasury yields fell, with the 10-year Treasury rate slipping 12 basis points yesterday, after Federal Reserve Chair Jerome Powell reiterated that the U.S. central bank was committed to bringing down inflation, while also acknowledging the possibility of a recession. Earlier this month, the Fed raised the federal funds rate by 75 basis points, the largest increase since 1994, as it ramped up its fight against inflation and even as growth remained fragile, which is stoking recession fears. The 10-year U.S. Treasury yield was at 3.15%. The benchmark Brent crude oil was trading 1% lower at $110.50 per barrel amid fears that aggressive rate hikes by most central banks across the world could lead to a global economic downturn. India imports nearly 85% of its crude oil needs. India’s inflation is expected to ease to the medium term target of 4% in the next financial year, while the objective of the central bank is to lift the key repo rate above the inflation forecast four-quarters ahead, said Michael Patra, a deputy governor at the RBI and a member of the rate-setting Monetary Policy Committee, according to the minutes of the panel’s latest meeting which were released after market hours yesterday. The MPC had raised the repo rate by 50 basis points to 4.90%, while the central bank had raised its inflation forecast by 100 bps to 6.7% for this financial year at the meeting. Another member, Jayanth R. Varma, said the MPC needs to do more in upcoming meetings to bring the central bank’s real policy rate to a “modestly positive level” that would be in sync with inflation and growth dynamics. Nomura reiterated that the RBI’s new inflation forecast was still optimistic and inflation may hit 8% in August-September and average 7.5% this year.