Mumbai: Indian 10-year bond yields fell below 8% on Thursday for the first time since late April on optimism that moderating inflation would see the central bank leave interest rates unchanged at a 31 July policy review.
Data on Friday is forecast to show wholesale price inflation at 4.03% in the 12 months to 23 June, unchanged from the previous week’s 14-month low, a Reuters poll found.
The 10-year federal bond yield ended two basis points lower at 8.01%, after touching a low of 7.96% during trade. The yield has fallen 17 basis points since Friday and around 40 points from 10-month highs. “It was not a rally based just on speculation, since there was buying in all segments. It looks like bankers have taken a view that yields won’t rise from here,” a senior trader with a primary dealer said. Trading volume on the central bank’s electronic platform was Rs10,380 crore, close to its highest this year.
The rally was also supported by ample cash in the system, as the central bank has not issued market stabilization scheme bonds this week to drain some of the extra funds.
The comfortable cash position was reflected in the overnight call rate, which closed at 0.20-0.40%, well below the central bank’s main lending rate of 6%. The government will auction Rs10,000 crore of bonds on Friday. Traders expect the sales to go through smoothly.