MUMBAI: Indian government bonds fell on Friday, as hawkish commentary from India’s central bank governor, coupled with higher U.S. Treasury yields and oil prices, curbed appetite for debt.
The yield on the benchmark 10-year bond ended over 2 basis points higher at 6.3505%, the highest since May 9, compared with a previous close of 6.3276%.
Bond yields move inversely to prices.
Traders pared positions after the weekly debt auction, as a slew of negative cues soured sentiment.
“While the auction was subscribed fully, there is no further incentive for fresh buying as rising U.S. yields, oil prices anddeclining rupee are all negative for bonds,” said Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank.
The 10-year U.S. Treasury yield was at 4.4117% in Asian hours, up over 8 basis points from Tuesday’s low of 4.33%. Meanwhile, oil prices rose 0.23% to $69.34 per barrel.
The central bank governor’s fireside chat at a Financial Express event also curbed expectations for rate easing, traders said, prompting those who were betting on an August cut to pare positions.
India bonds end steady as lack of cues continue to dominate
Malhotra said monetary policy, being forward-looking, will place greater focus on the outlook for growth and inflation, rather than their current levels, when the policy panel meets on August 6.
With retail inflation falling to a six-year low and likely to hit a record low in July, calls for at least one more rate cut had ramped up.
Malhotra added that the bar for further easing is higher than it would have been if the stance was accommodative, though the central bank still has the flexibility to move the rates up, down or pause.
Rates
India’s overnight index swap rates rose due to high paying pressure as traders unwound earlier receiving positions.
The one-year OIS rate ended 3 basis points higher at 5.53% and the two-year OIS rate rose nearly 5 bps to 5.51%. The liquid five-year OIS rate also rose 5 bps to 5.73%.
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