Bond yields dip to 6.41% as FM Nirmala Sitharaman reaffirms foreign bond plan

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Updated: July 30, 2019 6:56:26 AM

The yield on the benchmark bond inched lower on Monday as finance minister Nirmala Sitharaman reaffirmed plans of issuing overseas sovereign bonds and said the economy could do better with a substantial rate cut.

The benchmark 10-year government bond yield fell by 11 basis points (bps) to close at 6.41% on Monday, putting a hold on the 18 bps climb in yields last week.

The yield on the benchmark bond inched lower on Monday as finance minister Nirmala Sitharaman reaffirmed plans of issuing overseas sovereign bonds and said the economy could do better with a substantial rate cut.

The benchmark 10-year government bond yield fell by 11 basis points (bps) to close at 6.41% on Monday, putting a hold on the 18 bps climb in yields last week.

Yield rose in the previous week after Reserve Bank of India (RBI) governor Shaktikanta Das signalled that further interest rate cuts would be dependent on incoming data like inflation and growth numbers. Also, there were reports that the Prime Minister’s Office (PMO) was opposed to the foreign currency bond issuance.

Significant rate cuts over and above the 75 bps RBI has already delivered would do a lot of good to the country, news reports said, quoting the finance minister. She also added that her office is not reviewing the government’s proposal to issue overseas sovereign debt.

“Bond yields have fallen as a rate cut in the August MPC now seems very likely given the finance minister’s desire for significant rate cuts,” said senior banker and fixed income strategist Rajeev Pawar.

Bond dealers believe that a slowdown in growth globally and in local markets has given an impetus for further monetary easing. “A slowdown in global markets and in the local front coupled has led to a need for further monetary easing with regard to rate cuts, which has been highlighted by the finance minister,” said IDFC AMC head-fixed income Suyash Choudhary .

FPIs have invested nearly $1 billion in the Indian debt markets this month up to July 26 on the back of an inflow of $1.2 billion in June. “The reaffirmation of the issuance of foreign currency denominated sovereign bonds by the finance minister will lead yields to cool further to the 6-6.25% range as demand-supply mismatch in the local markets will cool down,” said Sundaram Mutual Fund’s CIO-debt Dwijendra Srivastava.

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