Mumbai: Bond yields dropped from 2-month highs on Wednesday on hopes of interest rate cut by the Reserve Bank of India (RBI) to shore up growth.
The yield on the 8.24% bond maturing in 2018 ended at 6.65%, off the day’s high of 6.71%, a level last seen on 5 December. It had closed at 6.54% on Tuesday.
“Bond markets will watch out for the GDP data due on Friday and a further slowdown in growth will signal further rate cuts from the central bank (RBI),” said Satish Jeurkar, head of fixed income at Saraswat Bank.
“The market is entirely hinging on the possibility of an interest rate cut and has already discounted a 50 basis points (bps) cut each in the repo and reverse repo rates. Hence, moving the market in such depressed conditions amid heavy market borrowing requires a much larger cut,” Jeurkar said.
Volumes were a light Rs50.55 billion ($1 billion) on the apex bank’s trading platform, with the 2018 bond being the most traded.
The yield on the 6.05% bond maturing in 2019 closed at 6.18%, above Tuesday’s 6.15% finish.
Supply concerns have ruled market sentiment in recent weeks, with another Rs340 billion worth of bonds to be auctioned in the remaining weeks of the current fiscal year in addition to supplies of treasury bills and state development loans.
The government sold Rs80 billion worth of treasury bills earlier in the day and is scheduled to auction another Rs127.6 billion worth of state development loans on Friday.
“I do not see yields hardening further from these levels and I also expect the central bank to be aggressive this time around on open market operations,” said Sujoy Kumar Das, head of fixed income at Bharti Axa Investment Managers.
“Devolvement at Tuesday’s auction also suggests that the central bank is not comfortable with yields going up further from current levels,” he said.
Reports of a likely cut in diesel prices took yields lower in mid afternoon, but they rose 4 bps after the oil minister, Murli Deora, ruled out any imminent action.