MUMBAI: Indian government bonds declined on Wednesday, hurt by a sliding rupee that fell the most in nearly three months, while traders braced for the Federal Reserve’s policy later in the day.
The yield on the benchmark 10-year bond settled at 6.3700% against Tuesday’s close of 6.3589%. Bond yields move inversely to prices.
“Focus is now on the rupee and the U.S. Fed meet, where the commentary is expected to be dovish,” said Umesh Tulysan, managing director at Delhi-based Sovereign Global Markets.
Market sentiment soured as the rupee hit a five-month low, after U.S. President Donald Trump said on Tuesday that a trade deal with India has not been finalised yet, and higher tariffs were possible.
Reuters reported on Tuesday that India was preparing to accept higher tariffs of 20%-25% on its exports to the U.S. in the absence of a trade deal, as it holds off on offering fresh concessions ahead of Friday’s deadline.
Meanwhile, with the Fed widely expected to keep rates unchanged, traders will closely watch Chair Jerome Powell’s remarks to gauge the rate cut trajectory and its local implication.
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Recent commentary by the Reserve Bank of India chief has also led to trimmed bets of rate cuts in India.
“Uncertainty remains on the timing of the rate cut, whether it’s in August or October. We continue to see greater chances of an October cut as there will be clarity on food inflation with monsoon season complete,” IDFC First Bank said in a note.
Rates
India’s overnight index swap rates edged lower, as receiving bias continued, while trading volumes were muted.
The one-year OIS rate dropped 1 basis point to 5.50%, and the two-year OIS rate was down 2 basis points at 5.48%. The liquid five-year OIS rate settled little changed at 5.72%.
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