India's 10-year yields falls for fifth straight week; rupee rises for fourth

MUMBAI: India's benchmark 10-year bond yield posted its fifth straight weekly fall, while the rupee rose sharply in late trade to its highest level since end March on dollar sales by foreign banks and an uptick in domestic shares.

Sentiment for bonds was buoyed by the Reserve Bank of India's 350-billion-rupee ($4.80 billion) worth bond buy on Thursday, while a fall in US Treasury yields also helped.

India's benchmark 10-year bond yield closed up 1 basis point on the day at 5.98%, but ended down 1 bp on week.

The partially convertible rupee ended at the day's high of 72.83 per dollar, its strongest since March 30 and up 0.4% versus its previous close of 73.10. On the week, the unit rose 0.6%, posting its fourth straight week of gains.

"In India the improving trend of moderation in daily new Covid cases is boosting risk sentiment," said Rahul Gupta, head of currency research at Emkay Global Financial Services.

"FX traders will monitor the Covid situation and trend in the dollar, and keep the spot rupee within 72.50-73.50 with a negative bias," he added.

India reported 259,551 new coronavirus infections over the last 24 hours on Friday, while deaths rose by 4,209.

SENTIMENT BULLISH

India raised a higher-than-scheduled 378.10 billion rupees at a debt sale on the back of bullish sentiment, but some position cutting was seen post results.

Bond yields have dropped in each of the last five weeks and in eight out of the last 10, as the RBI actively intervened in the market, conducted open market purchases and cancelled auctions to ensure yields remain capped.

Lower yields are critical to ensure the government's borrowing cost is curtailed as it looks to borrow a massive 12.06 trillion rupees in 2021/22.

The RBI wants to cap the benchmark 10-year bond yield at 6%, local media Informist reported earlier in the day, citing an unnamed senior banking official.

"Half the stock (of 10-year bonds) is with the RBI and they have made the market realise that they will buy below 6% on this paper by cancelling auctions when people are bidding above 6.05% levels," said Murthy Nagarajan, head of fixed income at Tata Asset Management.

"The RBI will be able to control yields at least for this financial year. The 10-year should hold between 5.90%-6.10% range."

RBI's aggressive dollar buying intervention to prevent sharp gains in the rupee has also added to rupee liquidity in the market but traders expect the central bank to try and keep the local currency stable between 72.50 and 75 levels.

Asian currencies rose on Friday but a recent poll showed bearish bets rising on several Asian units as increasing COVID-19 cases have prompted lockdowns in several countries.

Investors, however, turned bullish on the Indian rupee for the first time in more than two months.