Bond yields fall on rate cut view, low oil

Bond yields fall on rate cut view, low oil

Mumbai: Indian federal bond yields eased on Tuesday after a steep rise in the previous session, as expectations for rate cuts got a boost from China’s move while lower oil prices raised hopes for a further drop in inflation.

At 10:22am, the benchmark 10-year bond yield was at 5.63%, lower than 5.71% at close on Monday when it rose 15 basis points (bps) on profit taking.

The yield has fallen 144 bps so far this month on hopes for easier monetary policy following rate cuts across the world.

Volume was heavy at Rs28.6 billion on the Reserve Bank of India’s (RBI) trading platform.

“People are comfortable taking long positions in current market conditions, where interest rates are set to fall," said a trader at a foreign bank.

Analysts widely expect RBI to further lower its key short-term lending rate, which it has slashed by 250 bps since mid-October to 6.5% to help lift flagging economic growth.

China’s central bank cut banks’ benchmark lending and deposit rates by 0.27% on Monday, the fifth cut since mid-September, following the US Federal Reserve’s move last week to bolster market liquidity.

A fall in crude also helped sentiment. Oil traded below US $40 a barrel, weakened by growing signs of deteriorating world oil demand. Falling oil prices could douse inflation pressures in the coming weeks.

Annual inflation slowed to 6.84% in early December, below the RBI’s inflation target of 7% for the current fiscal year. This would give RBI more elbow room to lower rates. Weekly inflation data is due on Friday.

Traders said they were awaiting state loan auctions later in the day. Six Indian states are selling 10-year loans worth Rs45.5 billion through a multiple price auction.