Feel-good for Indian bonds lasted just one day as bears return
Mumbai: The feel-good factor only lasted a day.
India’s bonds surged last Monday, with 10-year yields dropping the most in a year, after the Reserve Bank of India (RBI) scrapped a planned sale of open-market operation bonds, fuelling speculation it would end one of the sources of debt supply for the fiscal year.
The bears didn’t take long to reappear. Benchmark securities erased almost all their gains by Friday as the focus returned to concern that rising oil prices will boost inflation and the government will need to sell more bonds to finance its budget deficit.
“The market reaction clearly suggests that the OMO cancellation impact was shortlived and risk appetite has been impacted more than the market was assuming initially,” said Suyash Choudhary, head of fixed income at IDFC Asset Management Co., which has the equivalent of $10 billion. “The already high supply of government and state bonds, worries over fiscal slippage and hawkish RBI inflation commentary has weighed on sentiment.”
India’s 10-year bond yield has climbed about 60 basis points from its low in July as higher oil prices saw annual inflation accelerate to the fastest in seven months in October. That damped speculation the RBI will be able to lower interest rates any time soon. The benchmark yield closed at 7% on Friday.
IndusInd Bank Ltd projects the yield will climb to 7.10% by the end of December, while Emkay Global Financial Services Ltd predicts it may rise as high as 7.50 to 7.80% in the next six-to-12 months.
S&P Global Ratings reaffirmed India’s sovereign rating on Friday and maintained a stable outlook, in contrast with Moody’s Investor Service that upgraded the country on 17 November. Bloomberg
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