MUMBAI: Indian government bond yields are likely to edge lower in the early session on Wednesday following data that showed inflation eased, while the Reserve Bank of India’s (RBI) revised guidelines on investment categorisation for banks were seen aiding sentiment.
The new 10-year benchmark 7.18% 2033 bond yield is likely to trade in the 7.15%-7.19% range on Wednesday after ending the previous session at 7.2002%, a trader with a primary dealership said.
The revised RBI guidelines have removed the ceiling on the held-to-maturity category of banks’ investment portfolio, and this is seen as a positive for longer-tenor bonds, according to traders.
India’s retail inflation in August was at 6.83%, lower than July’s 15-month high of 7.44% and a Reuters’ poll estimate of 7% but remained above the upper end of the RBI’s target band for a second consecutive month.
August inflation print should provide some breathing space to the monetary policy committee, said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
“However, we continue to remain watchful on the cereals, pulses and rising oil prices. Overall, the readings reinforce our view of a prolonged policy-rate pause with a clear caution on any risks arising for generalised inflation.”
A rise in crude oil prices is seen capping the fall in benchmark yields.
“With 10-year US yield hovering around 4.30% and oil prices elevated, the benchmark yield is unlikely to break below 7.15%. The US CPI data is also a crucial next trigger,” said a foreign bank trader.
Oil prices jumped on Wednesday, hovering at a new 10-month high hit the previous day, on expectations of tighter global supply and fears of supply disruption in Libya.
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