Mumbai: The bond yields fell on Monday, snapping a two-day rising streak and retracing from early highs, on expectations May’s slower-than-expected industrial output growth would ease prospects of aggressive policy tightening.
But concerns over June inflation data due on Wednesday, checked a further fall in yields. The yield on the benchmark 10-year bond ended down 4 basis points on the day at 7.61% after falling to 7.60% after the data.
It had risen to 7.66% earlier during trade, matching the highest since 25 June it had touched on Friday on concerns of tight liquidity and impending debt supplies.
The benchmark 10-year bond traded in a band of 7.60-7.65% during the day. Volumes were heavy at Rs103.7 billion ($2.2 billion) on the central bank’s trading platform.
“The sentiment in the bond market has changed from last week. Bonds have got a boost from the IIP (index of industrial productivity) number coupled with the marginal risk averseness since the morning in Asian and European markets,” said Nirav Dalal, managing director and country head of debt capital market at YES Bank.
India’s industrial output grew at 11.5% from a year earlier in May, its slowest pace in seven months and lower than market expectations of 16%, but the data is not expected to stop another rate hike by the Reserve Bank of India (RBI) later this month.
On 02 July, the RBI had raised its key lending and borrowing rates by 25 basis points, its third hike so far this year, as it struggles to contain inflation which has accelerated into double digits.
A Reuters survey on Monday showed the wholesale price index (WPI) in June probably rose 10.8% from a year earlier, faster than a 10.16% rise in May. The data is due to be released on Wednesday.
Dealers said trading would remain rangebound as the WPI data would set the trend. “Market will sell off if inflation crosses 11%,” Dalal said.
Overnight indexed swaps fell in tandem with bonds.
The one-year swap rate ended at 5.69%, after falling to the day’s low of 5.65%, and lower than Friday’s closing of 5.74%.
The benchmark five-year swap rate ended at 6.76%, off an intraday low of 6.74%, and compared with Friday’s closing of 6.81%.
Bond yields are expected to ease further on Tuesday due to expected buying interest after the factory output data, with the 10-year bond yield seen hovering in the 7.54-7.62% range.
After market hours, the government said it will sell Rs130 billion of bonds on 16 July.
In the interest rate futures on the National Stock Exchange, the September contract implied a yield of 8.0316%, while the December contract was not traded