Bond yields fell by 15 basis points on Wednesday – their biggest single-day fall in four years – triggered by a 14% drop in Brent crude prices after the announcement of ceasefire in West Asia buoyed market mood. The 10-year bond yield closed at 6.90%.
What added to the positive sentiment was the Reserve Bank of India’s assurance that ample liquidity will be provided and the system will continue to in the surplus.
Industry experts said that further rally rally in bonds and rupee will depend on the duration of the ceasefire and actual fundamentals.
“The ceasefire is positive if it holds. Pre-war, the oil prices were at $65 per barrel and coming back to that level will take time. So markets will need to find a new range,” said Rajeev Pawar, head of treasury, Ujjivan Small Finance Bank, adding that the policy was a bit dovish, which also helped.
“Markets feared a hawkish tone, which would have driven yields to 7.15%. If the ceasefire holds I expect the 10-year benchmark bond to trade range bound with plus or minus five bps from current levels,” he explained.
At the same time, the rupee continued to gain and closed at 92.57 to a dollar – up 42 paise. The Reserve Bank of India assured that the strictures issued on the non-deliverable forward market is only to handle the current volatility and ‘not a structural change’.
Dilip Parmer, research analyst, HDFC Securities said that the Indian rupee gained from several key “tailwinds,” including a plunge in crude oil prices, supportive commentary from the RBI regarding recent regulatory curbs, and a sharp rally across global equity indices.
With geopolitical anxieties dissipating, both the rupee and its regional currencies appear poised for additional strength over the coming days.
“From a technical perspective, the trading range for the USDINR has shifted to 92 and resistance at 93.10,” he added.