MUMBAI: Indian government bonds erased most of the day’s gains on Wednesday, after steady core inflation data out of step with the low headline figure dampened sentiment, overshadowing suspected central bank support in the secondary market.
The benchmark 10-year yield settled at 6.4955%, after ending Tuesday at 6.5078%. It hit a low of 6.4754% intraday - a level last seen on October 17.
Bond yields rise when prices fall.
India’s retail inflation slumped to a record low of 0.25% in October, driven by a sharp fall in food prices and cuts on goods and services tax.
Core inflation was steady at 4.4%, dissapointing traders who anticipated a lower figure.
“There is no positivity coming from inflation numbers for Indian bonds and it has likely bottomed out,” said Sandeep Bagla, chief executive officer at Trust Mutual Fund.
Souring bond market sentiment following the release of inflation data pushed the 10-year yield briefly back to 6.50% - a critical threshold that the Reserve Bank of India’s suspected secondary market purchases had recently helped coax the market below.
Investors in the “others” category, comprising corporates, insurers, pension funds and the central bank, bought over 300 billion rupees ($3.38 billion) of bonds in the past six sessions, clearing house data showed. Traders believe the RBI is largely behind the recent purchases.
Adding to the woes is the growing likelihood of a U.S.-India trade dealthat traders expect will reduce pall over economic growth, lowering any urgency for the RBI to pursue further rate cuts.
RATES
India’s overnight index swap rates (OIS) dipped on Wednesday, tracking a drop in U.S. Treasury yields.
The one-year OIS rate fell 1 bp to 5.4650%, while the two-year rate was down 2 bps at 5.44%. The five-year swap rate dropped 2.5 bps to 5.7050%.
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