LM:Indian bond yields fall sharply as rupee recovers
Mumbai: Indian government bond yields fell sharply on Tuesday, snapping a two-day rising streak, tracking a sharp rally in the rupee and a drop in global crude oil prices amid easing concerns about a possible US-led military strike on Syria.
Sentiment for the rupee also helped, as investors tentatively bet the worst may be over for the currency, which hit a two-week high on Tuesday.
However, bonds are entering a perilous period, with India’s factory output and consumer inflation data due this week, while the US Federal Reserve and the Reserve Bank of India (RBI) hold their policy meetings next week.
“Not sure if we have seen the top on bond yields and dollar/rupee yet. Still lots of uncertainties including factory output, inflation, Fed and RBI decisions. Besides if a global sell-off starts, then India will again be in trouble,” said Samir Lodha, managing director at QuantArt Market Solutions.
The benchmark 10-year bond yield closed down 16 basis points at 8.47% over Friday’s close. Markets were closed on Monday for a local holiday.
Surging exports led the country’s trade deficit in August to narrow to a five-month low of $10.9 billion, providing a rare silver lining in a tough few months for the country, with the rupee tumbling to a record low of 68.85 on 28 August.
Global oil prices fell to about $113 a barrel on Tuesday after a Russian proposal to avert a US strike on Syria appeared to gather steam, easing investor concerns that another Middle East conflict would further disrupt fuel supplies.
In the overnight indexed swap market, the benchmark five-year rate and the one-year rate both closed down 17 basis points each at 8.27% and 9.09%, respectively. Reuters
