MUMBAI: Indian government bond yields were marginally lower in early trade on Monday, as sentiment remains positive following last week’s moves, even as traders await key October retail inflation data.
The benchmark Indian 10-year government bond yield was at 7.2939% as of 0441 GMT, after closing at 7.3069% on Friday. It fell 16 basis points (bps) in the previous week, posting its biggest weekly drop in nine months.
“Underlying sentiment is still favouring the bulls, as market participants expect some downward surprise in inflation in line with US data,” a trader with a private bank said.
“Still, they will avoid placing very large bets as yields have already fallen sharply.”
Last week, yields plunged tracking a slump in US yields, after consumer prices in the world’s largest economy cooled in October, raising hopes that the Federal Reserve will slow down the pace of rate hikes.
The 10-year US yield had dropped by over 30 bps last week.
Indian bond yields ease for third day as rupee’s jump aids sentiment
It was last trading at 3.9006%. India’s consumer price inflation slowed to 6.73% in October on weaker food price rises and a strong base one year ago but stubbornly remained well above the 6% upper limit of the Reserve Bank of India’s (RBI) tolerance band, a Reuters poll predicted.
Forecasts ranged from 6.40% to 7.35%, with three-quarters of respondents expecting a figure under 7.00%, while the reading stood at 7.41% in September.
Easing inflationary pressures could also lead to the RBI not hiking interest rates aggressively.
The central bank has already raised rates by 190 bps since May to 5.90%.
The next policy decision is due on Dec. 7.
Meanwhile, Gautam Kaul, a senior fixed income fund manager, at IDFC Asset Management Co, said government bonds are still preferable over corporate debt as the spread is not very attractive.
He expects the RBI’s policy repo rate to top out in the 6.25%-6.50% zone, after a hike of 25 bps to 35 bps in December.
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