India bonds hemmed in as market digests higher rates
The Reserve Bank of India has increased its key policy rate by 25 basis points, raising it to 5.50%. This adjustment signifies a strategic step towards cautious monetary tightening shaped by global economic developments. Traders are exercising cau...
By Reuters |
IANS
Indian government bonds traded in a narrow range early Thursday as traders digested the Reserve Bank of India's first rate hike in nearly four years along with a shift to a "calibrated tightening" stance, signalling further policy action ahead.
Elevated global yields and crude oil prices also kept sentiment guarded.
The benchmark 6.94% 2036 bond yield was flat at 7.2404% as of 11:00 a.m. IST. Bond yields rise when prices fall.
The RBI raised its key policy rate by 25 basis points to 5.50% on Wednesday, abandoned its neutral stance and revised its inflation and growth projections higher.
The move aligns India with a broader wave of global monetary policy tightening, as major central banks raise interest rates.
"We see (a) shallow rate hike cycle (by the RBI) of another 50 basis points over next 6 months to align with global macro drop," said Kaustubh Gupta, chief investment officer, fixed income, at Aditya Birla Sun Life AMC.
Traders expect tighter domestic financial conditions and potential RBI liquidity absorption to keep bond prices under pressure.
Contrary to market expectations, the central bank did not announce any additional measures to drain surplus liquidity from the banking system on Wednesday.
"We believe the RBI is likely to maintain its focus on liquidity management. Rate hikes without corresponding liquidity tightening could prove less effective," said Rajani Sinha, Chief Economist, CareEdge Ratings.
The RBI sold bonds worth 1 trillion rupees ($10.35 billion) by last month, the largest amount in at least a decadeand may announce more such operations, traders said.
The Indian debt market is also grappling with supply pressures as states and the central government plan to raise their issuance of longer-dated notes in the coming months.
The one-year OIS rate fell 1 bp to 6.24%, the two-year rate dropped 1.25 bps to 6.44%, and the liquid five-year rate held at to 6.7250%.
Elevated global yields and crude oil prices also kept sentiment guarded.
The benchmark 6.94% 2036 bond yield was flat at 7.2404% as of 11:00 a.m. IST. Bond yields rise when prices fall.
The RBI raised its key policy rate by 25 basis points to 5.50% on Wednesday, abandoned its neutral stance and revised its inflation and growth projections higher.
The move aligns India with a broader wave of global monetary policy tightening, as major central banks raise interest rates.
"We see (a) shallow rate hike cycle (by the RBI) of another 50 basis points over next 6 months to align with global macro drop," said Kaustubh Gupta, chief investment officer, fixed income, at Aditya Birla Sun Life AMC.
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Traders expect tighter domestic financial conditions and potential RBI liquidity absorption to keep bond prices under pressure.
Contrary to market expectations, the central bank did not announce any additional measures to drain surplus liquidity from the banking system on Wednesday.
"We believe the RBI is likely to maintain its focus on liquidity management. Rate hikes without corresponding liquidity tightening could prove less effective," said Rajani Sinha, Chief Economist, CareEdge Ratings.
The RBI sold bonds worth 1 trillion rupees ($10.35 billion) by last month, the largest amount in at least a decadeand may announce more such operations, traders said.
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The Indian debt market is also grappling with supply pressures as states and the central government plan to raise their issuance of longer-dated notes in the coming months.
Rates
India's overnight indexed swap rates traded mixed as investors searched for fresh cues.ADVERTISEMENT
The one-year OIS rate fell 1 bp to 6.24%, the two-year rate dropped 1.25 bps to 6.44%, and the liquid five-year rate held at to 6.7250%.
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