Indian bonds breathe easy as Treasury yields decline
Early Thursday, bonds issued by the Indian government saw slight upswings, influenced by a rally in US Treasuries. Despite this, concerns over liquidity, climbing interest rates, and mounting supply challenges have capped these hikes. Traders are ...
By Reuters |
ETMarkets.com
Indian government bonds edged higher early on Thursday, tracking a rally in US Treasuries, but gains were capped by concerns over tighter liquidity, higher interest rates and mounting supply pressures.
The benchmark 6.94% 2036 bond yield was down 2.5 basis points at 7.3714% at 11:40 a.m., after falling as much as 4 basis points at the open.
Bond yields move inversely to prices.
The benchmark 10-year US Treasury yield, a barometer for global borrowing costs, dropped more than 8 basis points to 5.10% in Asian trade, after comments from Federal Reserve officials signalled little urgency to raise rates further.
Traders still continued trimming risk in the Indian debt market ahead of a large debt auction and the Reserve Bank of India's tighter cash-reserve-ratio maintenance requirements that take effect on Friday.
"The near-term direction of IGB yields remains skewed higher as the RBI continues to tackle inflation risks, excess liquidity and currency stability concerns," said Sherilyn Chew, multi-asset strategist at DBS Bank. "The policy and supply backdrop suggests yields could remain under upward pressure in the near term."
The latest selloff has widened India-U.S. yield spreads across the curve, defying the compression seen in other Asian markets. The India-U.S. 10-year spread expanded to 228 basis points on Thursday, its widest since July 1.
Rate-hike bets have also intensified as domestic inflation quickened and Brent crude held above $100 a barrel.
India's September consumer inflation accelerated to 5.54%, and a majority of economists expect it to breach the RBI's 6% tolerance ceiling in October.
RBI Governor Sanjay Malhotra signalled Tuesday that monetary policy and financial stability cannot be fully disentangled, reinforcing expectations of further tightening.
The one-year OIS rate rose 1.5 bps to 6.4450%, the two-year rate dropped 1.5 bps to 6.58%, and five-year rate eased 3.25 bps to 6.7675%.
The benchmark 6.94% 2036 bond yield was down 2.5 basis points at 7.3714% at 11:40 a.m., after falling as much as 4 basis points at the open.
Bond yields move inversely to prices.
The benchmark 10-year US Treasury yield, a barometer for global borrowing costs, dropped more than 8 basis points to 5.10% in Asian trade, after comments from Federal Reserve officials signalled little urgency to raise rates further.
Traders still continued trimming risk in the Indian debt market ahead of a large debt auction and the Reserve Bank of India's tighter cash-reserve-ratio maintenance requirements that take effect on Friday.
"The near-term direction of IGB yields remains skewed higher as the RBI continues to tackle inflation risks, excess liquidity and currency stability concerns," said Sherilyn Chew, multi-asset strategist at DBS Bank. "The policy and supply backdrop suggests yields could remain under upward pressure in the near term."
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The latest selloff has widened India-U.S. yield spreads across the curve, defying the compression seen in other Asian markets. The India-U.S. 10-year spread expanded to 228 basis points on Thursday, its widest since July 1.
Rate-hike bets have also intensified as domestic inflation quickened and Brent crude held above $100 a barrel.
India's September consumer inflation accelerated to 5.54%, and a majority of economists expect it to breach the RBI's 6% tolerance ceiling in October.
RBI Governor Sanjay Malhotra signalled Tuesday that monetary policy and financial stability cannot be fully disentangled, reinforcing expectations of further tightening.
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Rates
India's overnight indexed swap (OIS) rates traded mixed early Thursday.The one-year OIS rate rose 1.5 bps to 6.4450%, the two-year rate dropped 1.5 bps to 6.58%, and five-year rate eased 3.25 bps to 6.7675%.
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