MUMBAI: Indian government bond prices reversed early gains to end lower on Monday, with the 10-year yield jumping to a five-month high, as traders continued to cut positions on worries over fiscal slippage and weak appetite to meet upcoming supply.
The benchmark 10-year bond yield ended at 6.5967%, the highest level since March 27, after closing at 6.5510% on Friday. The yield had jumped 15 basis points last week.
Yields move inversely to prices.
“Fiscal worries due to goods and services tax (GST) cut have taken the centre stage,” said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.
“The breach of 6.53% on the 10-year bond yield has had a negative effect on market, and buyers have now turned cautious.”
The government has proposed cuts to GST, including moving to a two-rate structure of 5% and 18% and scrapping the 12% and 28% rates, fuelling fears of fiscal slippage that could nudge the government to undertake additional borrowing.
India 10-year bond yield logs biggest weekly spike since May 2022
The GST council will meet on September 3-4 to discuss these changes.
Credit-rating firm Fitch maintained India’s sovereign rating on Monday, citing levels of fiscal deficits and debt that are still high, further weighing on investor sentiment. Its peer S&P had upgraded India recently, a first in 18 years.
Bond yields had eased in early part of the day, after U.S. Federal Reserve Chair Jerome Powell alluded to a possible interest rate cut at the central bank’s policy meeting next month, saying that risks to the job market were rising.
The bets of a Fed rate cut in September rose to nearly 90%, according to the CME FedWatch Tool.
Rates
India’s overnight index swap rates ended largely unchanged in a choppy session, as fiscal worries and India’s rating remaining unchanged overshadowed receiving triggered by a dovish Fed.
The one-year OIS rate ended at 5.52% and the two-year OIS rate closed at 5.50%. The liquid five-year OIS rate settled at 5.75%.
Comments
Comments are closed for this article.