Government bonds rose the most in five weeks and the rupee climbed to a near two-week high on speculation that demand for the nation’s assets will be sustained after the US Federal Reserve said it would raise interest rates gradually.
The domestic unit strengthened by 39 paise to a more-than-two-week high of 63.73 against the American currency on persistent selling of dollars by banks and exporters. Besides, lower dollar in the overseas market affected the market sentiment.
The rupee resumed higher at 63.95 against Wednesday’s closing level of 64.12 and firmed up further to 63.70 before concluding at 63.73, a gain of 39 paise, or 0.61%.
Fed chair Janet Yellen on Wednesday signalled that a pickup in the US economy was keeping it on track to lift borrowing costs this year, though subsequent increases were likely to be more gradual than anticipated earlier. That reduced chances of sudden outflows from emerging markets. Policy makers also lowered their longer-term projections for US rates.
The yield on notes due July 2024, the current 10-year benchmark, slid eight basis points, the most since May 11, to 7.95%, according to prices from the RBI’s trading system.
“The Fed’s statement suggests that the liftoff won’t be as harsh as people expected,” said Ajay Manglunia, head of fixed income at Edelweiss Financial Services. “Further clarity on the Fed’s rate action will help restore stability for Indian bonds.”
As investors speculate on the timing of the first US rate increase, the yield on the 2024 securities has jumped 21 basis points this quarter amid concern a rebound in Brent crude prices and potentially deficient monsoon will fan inflation.
Global funds have been net sellers of $471 million of rupee-denominated debt since the end of March, according to data from the Central Depository Services compiled by Bloomberg. They were buyers in each of the last five quarters. The yield on sovereign bonds due May 2025, the new 10-year security issued last month, dropped eight basis points to 7.76% on Thursday. It’s still up 12 basis points in June.