Profit-booking takes bond yields tad higher after 7-day price rally
MUMBAI: Indian government bond yields ended marginally higher on Wednesday, as traders booked profits after prices rallied for seven consecutive sessions.
The benchmark Indian 10-year government bond yield ended at 7.2716%, after closing at 7.2613% on Tuesday. The yield had declined for the last seven sessions, dropping by an aggregate of 22 basis points (bps).
“Bonds have rallied quite a bit in last few days due to the bullish turn as inflation came down and views on policy rates changed, but we may see some consolidation at these levels before seeing another major move,” said Ajay Manglunia, managing director and head of investment grade group at JM Financial.
India’s retail inflation eased to a three-month low of 6.77% in October from the September reading of 7.41%, and this has
raised bets that the Reserve Bank of India (RBI) may slow down its pace of rate hikes.
Inflation has stayed above its 2%-6% tolerance band for 10 straight months.
Most market participants now expect the RBI to opt for a lower 35 bps rate hike next month, after three back-to-back rate hikes of 50 bps.
Market participants said the next major trigger could be Friday’s debt auction, and yields may remain in the thin range till then.
New Delhi will raise 300 billion Indian rupees ($3.68 billion) via the sale of bonds on Friday, which includes liquid five-year and 14-year bonds.
Traders will also keep an eye on moves in US yields and crude oil prices for further cues.
The benchmark Brent crude contract was trading 0.3% higher at $94.20 per barrel. Movement in oil prices has a direct impact on local inflation as India is a major importer.
The 10-year US yield was at 3.80% after US producer prices increased less than expected in October, which also raised bets of a slower pace of rate hikes.