MUMBAI: Indian government bonds rose to a two-week high on Thursday, even after the US Federal Reserve announced the start of a wind down in its monetary stimulus, as fears of foreign selling in debt markets have eased after recent buying.
Bonds extended gains from Wednesday's rally after the Reserve Bank of India unexpectedly kept interest rates unchanged.
However, traders cited an under-current of angst after the RBI continued to talk tough on inflation, raising the prospect that continued high retail and wholesale prices could lead the central bank to resume monetary tightening.
"The markets are rangebound and confused in terms of monetary policy direction," said Harish Agarwal, a fixed income dealer with First Rand Bank.
"Market is not sure whether or not we will see a rate hike in January. A few people are talking about no more rate hikes in the current cycle going forward," he added, predicting a 8.65 to 8.90 percent range until the year-end.
The benchmark 10-year bond yield closed down 4 basis points (bps) at 8.74 percent, lowest since Dec. 5, after moving in a range of 8.74 percent to 8.80 percent during the session.
Despite the Fed "taper," and a rise in US Treasury yields, the prospect of heavy foreign selling of Indian debt is looking less likely as most of the yield-chasing hot money that entered the country has largely exited, analysts said.
Foreign investors have turned net buyers of debt, with inflows of $518.22 million so far this month, although net sales still reach $8.31 billion for the year.
Instead, traders say the next key trigger would be the December inflation data due to be released in mid-January.
More immediately, traders are looking ahead at Friday's 150 billion rupees debt sale for direction.
In the overnight indexed swap market, the benchmark five-year swap rate closed down 4 bps at 8.36 percent, while the one-year rate ended 3 bps lower at 8.41 percent.
Comments
Comments are closed for this article.