Mumbai: Indian federal bond yields fell for a second consecutive day on Wednesday on expectations interest rates may be nearing a peak and helped by dovish comments by the new central bank chief.
At 9:57 a.m, the 10-year benchmark bond yield was at 8.30%, a level it last tested in early June, according to Reuters data, and below Tuesday’s close of 8.39%. It has fallen 19 basis points this week.
Volume was normal at Rs18.95 billion ($421 million) in the first hour of trading with the 10-year bond being the most heavily traded.
The Reserve Bank of India’s new governor, Duvvuri Subbarao, said on Tuesday while double-digit inflation rate was showing some signs of moderation, it was too early to conclude whether or not it represented a “discernible trend”.
“His comments suggested there would be no more action by the central bank and with inflation on a softening trend, the next level for the 10-year would be 8.25%,” said Baljinder Singh, a dealer at Andhra Bank in Mumbai.
Crude was trading below $104 a barrel, up from Tuesday, but well off a record high above $147 in mid-July. India imports about 70% of its oil and an increase in state-set retail prices in June had propelled inflation into double digits.
Inflation has softened since hitting 12.63% in early August, its highest since annual numbers in the current series became available in 1995. Latest data showed inflation at 12.34% on 23 August.
In a recent note, Kotak Mahindra Bank said it expected inflation at between 12.01-12.06% in end-August. The data is due on Thursday.
Dealers said they were waiting for a Rs90 billion bill sale later in the session to gauge investor appetite for debt amid tight cash conditions in the money market.