The benchmark yield had fallen to as low as 7.13% in recent times after the Reserve Bank of India (RBI) lowered its inflation expectations for the first and second halves of financial year 2018-19.
Bonds witnessed moderate selling on Wednesday with the benchmark yield rising five basis points to close at a one-week high of 7.54%. Market participants indicate that the public sector banks (PSU) continue to be net sellers of the central government securities. According to dealers, the overhang of rising oil prices and weakening rupee have weighed on sentiment in the bond market in recent times. As on Wednesday evening, Brent crude was trading close to a three-and-a-half year high of $72.68/barrel whereas the Rupee closed at 65.66 against the dollar, its lowest level since the end of September. “PSU banks are still not buying and it seems the high crude prices are weighing on the market. The weak currency is also adding to the worries. These are the main themes at the current juncture,” said a dealer.
The benchmark yield had fallen to as low as 7.13% in recent times after the Reserve Bank of India (RBI) lowered its inflation expectations for the first and second halves of financial year 2018-19. The central bank trimmed its projections for the consumer price index (CPI) inflation for the first half of FY19 to 4.7-5.1% from 5.1-5.6%, as stated in the February monetary policy, and to 4.4% from 4.5-4.6% for the second half of the fiscal. However, the market pared these gains with the yield rising as much as 40 basis points in less than two weeks. Buying from foreign portfolio investors (FPIs) has also remained subdued at just $58 million year-to-date on a net basis. In the last two trading sessions, FPIs sold over $620 million worth of Indian bonds. Tuesday itself saw a net FPI selling of $453 million, although it is not clear whether the figure indicates a selling or a redemption.
Rupee at fresh 7-month low
The rupee on Wednesday slipped by 2 paise to settle at a fresh seven-month low of 65.66 against the US currency due to sustained dollar demand and forex outflows, extending its fall for a third day amid surging crude prices. The rupee had fallen to a low of 65.79 in early trade but the RBI’s suspected intervention helped the currency recover to a day’s high of 65.59. State-owned banks and private lenders sold dollar likely on the behalf of the central bank to stem weakness in the local currency, a forex dealer said. High crude oil prices and losses in stock markets, however, weighed on the rupee later which fell back to close down by 2 paise or 0.03% at 65.66 per dollar.