Graphic: Paras Jain/Mint
Graphic: Paras Jain/Mint

Benchmark 10-year bond yield hits 8%, closes at near 4-year high

Foreign investors have sold $752 million and $8.13 billion in equity and debt markets in 2018, respectively

Mumbai: The yield on the 10-year benchmark bond on Monday touched 8% during the day and closed at a nearly four-year high, as a continued surge in crude oil prices and trade war worried investors. The 10-year bond yield settled at 7.999%, a level last seen on 1 December 2014, from its previous close of 7.952%. Bond yields and prices move in opposite directions.

The GDP data, released after market hours on Friday, had showed that the economy grew at 8.2% in the June quarter, higher than market estimates, raising the expectations of a rate hike this year. The Bloomberg median estimate of 39 economists for GDP growth for Q1 was 7.6% compared with 7.7% in the March quarter.

The primary drivers of the bond yield were inflationary concerns raised by the central bank in its monetary policy (MPC) minutes and the consequent rate hike expectations of the market, said N.S. Venkatesh, chief executive officer, Association of Mutual Funds of India (AMFI).

“That apart, the volatility of the rupee has also caused a bit of a flutter," Venkatesh said. The Indian rupee on Monday closed below the 71 mark for the first time to record a fresh low against the dollar after the local equity market fell sharply.

Earlier last week, Moody’s Investors Service had said that the government is likely to miss its fiscal deficit target in its final year because of higher-than-budgeted oil prices and rising interest rate scenario.

Meanwhile, foreign investors have sold $752 million and $8.13 billion in equity and debt markets in 2018, respectively.

“Oil prices at current levels will raise expenditure and add to existing pressures on the fiscal position stemming from the lowering of goods and services tax (GST) rates on a range of consumer goods and a tax cut for small businesses as well as the relatively high minimum support prices (MSPs) set for this year," Moody’s said in the note.

On the international front, the Trump administration plans to impose a further $200 billion of tariffs on Chinese imports as early as this week. Analyst expects the yuan, which has lost more than 6% against the dollar in the past three months, would extend its decline if Beijing retaliates.

Traders can also look forward to purchasing managers’ indexes from across emerging markets as well as Chinese trade statistics before Friday’s US monthly payrolls data, which could be key to determining where the dollar heads after it touched a 14-month high in August.

Meanwhile, the rupee ended at 71.21 to a dollar, down 0.29%, from its Friday’s close of 71.

The home currency opened at 70.78 a dollar and touched a high and a low of 70.77 and 71.06, respectively.

The benchmark Sensex index fell 0.86% or 332.55 points to 38,312.52 on Monday. It has gained 12.5% since January. Economists expect the August US jobs report to show that employers added 193,000 positions, while the unemployment rate fell to 3.8%, matching the lowest since 1969.

Close