MUMBAI: India's benchmark 10-year bond posted its biggest single-day fall in three months on profit-taking after the retail consumer inflation data and the industrial production data were largely in line with market expectations.
Traders said sentiment was also affected due to recent hawkish statement from several central bank officials on inflation, since this made early rate cuts from the central bank, far less likely.
Two deputy governors and one executive director at the Reserve Bank of India have said recently they would prefer to see some stability in the inflation data, before they consider a cut in interest rates.
"A pull back was always on the cards after the big rally. It now appears that governor Rajan will wait for a few more months before he reaches any conclusion about the inflation trend," said Kaushal Mehta, head of fixed income at LKP Securities, a debt brokerage in Mumbai.
India's economic outlook brightened on Wednesday with a surprise pickup in industrial output and further cooling in consumer prices, data showed, boosting Prime Minister Narendra Modi's bid to end the longest slowdown in growth in decades.
Industrial output unexpectedly grew 2.5 percent year-on-year in September while retail inflation slowed to 5.52 percent in October, but traders said this was largely in line with market expectations, especially after the rally seen ahead of the data.
Bonds have been rallying on hopes that this falling trend in inflation would allow the RBI to cut rates as early as in its Dec. 2 policy review. The 10-year benchmark bond yield had dropped 12 basis points this month and 36 bps since Oct. 1 until the last session, on this expectation.
The benchmark 10-year bond yield closed up 6 bps at 8.22 percent on Thursday, the largest single-day rise since Aug. 5 this year. On Wednesday, it touched 8.15 percent, a level last seen on Aug. 8, 2013.
India's five-year swap rate closed 6 bps higher at 7.46 percent, while the one-year rate also rose 6 bps to 8.05 percent.
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