Bond prices fall post stronger GDP at 5.5% ; hopes dim of interest rate cut

MUMBAI: Bond prices fell after government data showed that the June quarter gross domestic product rose more than expected, erasing hopes of the central bank lowering interest rates.

Yields on 10-year benchmark bond moved up to 8.23% after the Gross Domestic Product was released since traders expect government to sell bonds at higher yields in future. Bond prices and yields move in opposite direction.

GDP for the first quarter grew at 5.5% compared with an ET Now poll of 5.2%. The growth has come from sectors like construction while industry, manufacturing and agriculture fell.

Bond yields moved in the range of 8.18% to 8.23%, and at day’s high by 11.40 a.m.

“We will have to see where the growth is coming from,” said a treasury head of a public sector bank. “If you look at the data, construction has grown while manufacturing and agriculture has fallen.’’

Although the growth is above expected, it is a far cry from the days when growth averaged 9% before fiscal mess and policy paralysis slowed investments.

The poll ranged calls from 4.9% to 6%

Yields will remain range bound unless the government takes definite steps towards fiscal consolidation. With the inflationary expectations still high, most experts expect the Reserve Bank of India may not cut key rates in its monetary policy review on September 17.