Bond yields extend fall as US tariff threat hurts oil1 min read . Updated: 17 Jul 2019, 09:27 AM IST
- Rupee opened little changed against US dollar to 68.76
- The bond prices gaining already on the expectation of deeper rate cuts
Mumbai: Government 10-year bond prices rallied further on Wednesday as international crude oil prices declined after the US president Donald Trump threatened to place new tariffs on Chinese imports.
The yield on the 10-year government bond was at 6.284% -- a level last seen on 6 December 2016, compared with Tuesday's close of 6.433%. Bond yield and prices moves in opposite direction.
Crude was little changed in New York after tumbling 3.3% on Tuesday, adding to Monday’s 1.1% decline after Trump said he could impose additional tariffs on Chinese imports if he wants, after promising to hold off on more duties in a trade-war truce he reached with China’s Xi Jinping last month.
The bond prices gaining already on the expectation of deeper rate cuts, lower fiscal deficit target and government’s plan to raise part of its borrowing from overseas markets. So far this year bond yield has fallen over 100 basis points.
"Bond markets continued their winning streak rejoicing favorable dynamics marked by soft inflation, consequent expectations of further monetary policy easing and retreating US Treasury yields," said Edelweiss Finance in a 16 July report.
According to ICICI Bank Global Markets report on 12 July, a rate cut in August is most likely given the change in stance, benign inflation trajectory, growth concerns and the Union Budget sticking to the path of fiscal consolidation. Moreover, re-enforcement by global central banks to move on the path of accommodation would also help. We also expect another cut after that later in the fiscal year, contingent on the weak domestic and global growth as well as continued benign inflation trajectory.
Traders awaiting speeches from Federal Reserve officials and economic data in coming days for clues about the size of expected interest-rate cuts this year.
The US data this week include housing starts, jobless claims and consumer sentiment, after better-than-expected retail sales bolstered the greenback on Tuesday.
Meanwhile, the rupee opened little changed against US dollar to 68.76, down 0.07% from its previous close of 68.71.
In pre-trade, the benchmark Sensex was up 0.09% at 39166.67 points. So far this year, the index has risen 8.49%.
(Bloomberg contributed to this story)