10-yr bond yield may fall below 7.3% if Opec doesn’t cut output
GILT prices may see an extended rally in the coming days with the yield on the 10-year government bond falling below 7.30 per cent in the near-term, a first since April 9, if oil cartel Opec defers from output cuts even as Reserve Bank of India policy statement hints of change in policy stance in February with a possible rate cut in FY20, economists said.
If Opec fails to come to an agreement towards production cut or if the cut is below market expectation of 1.5 million barrel per day, Brent crude oil price will fall well below $60 a barrel helping India to control its imported inflation and subsequently rate action by the central bank, economists added.
“Bonds will closely read rupee and Brent cues, however favourable bond demand supply dynamics, sharp correction in global yields and sub 3 per cent November inflation print could push the yields down further, with fiscal slippage risks capping bond gains,” Madhavi Arora, economist, rorex & rates at Edelweiss Securities.
Bond dealers expect 10-year bond to trade in 7.3-7.5 per cent till December-end. On Thursday, gilt prices ended up with the 10-year bond yield closing at fresh eight-month low, while a sharp fall in Brent crude oil prices below was seen at $60 a barrel on expectation that the Opec may not reduce crude oil production.
The 7.17 per cent-2028 gilt ended at 7.42 per cent compared to 7.43 per cent at open and 7.44 per cent at close of previous session.
On Wednesday, the six member monetary policy committee unanimously voted to keep repo rate unchanged and at the same time lowered their inflation projection for the second half of the current fiscal year, given the sharp fall in oil prices coupled with stabilising rupee.
This led to strong FPI inflows into local bonds. FPI bought Rs 2,734 crore worth of G-sec on Wednesday following the release of RBI-MPC policy statement.
Adding to this, crude oil prices fell sharply after oil ministers from Saudi Arabia, Iran and Venezuela hinted at comfort with current output levels. Brent crude oil futures for February delivery traded 4.35 per cent down at $58.884 a barrel on Thursday.