Crude impact: Bond yields fall to lowest level in 18 months

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Mumbai | Published: June 1, 2019 2:18:24 AM

Foreign portfolio investors turned net buyers in May and poured in nearly $300 million in Indian debt markets on the back of an outflow of $1.5 billion in April, signaling a global positive sentiment towards Indian debt.

Bond Market, fpi interest, FPI interest in Indian bond

Indian bond yields on Friday fell to their lowest level in the past 18 months on falling crude oil prices and with the markets factoring in a rate cut in the June monetary policy meet.

The benchmark sovereign bond —7.26% yielding paper maturing in 2029 — fell by 10 bps to close at 7.03%. Bond yields have fallen over 35 basis points (bps) since May 1 due to a combination of global and domestic factors.

Dealers believe positive global sentiments like falling crude oil prices and a falling US-treasury yield coupled with domestic factors like the BJP government coming to power and a hope of easier liquidity has led the yields to fall.

“Global fall in yields and crude oil prices coupled with a positive sentiment domestically with respect to continuation of policies of the BJP government has led the yields to fall,” said Devang Shah, deputyhead-fixed income, Axis Mutual Fund. The benchmark US 10-year bond yield has dropped by 34 bps since May 1 to 2.15% on Friday, mirrored by Indian yields. Crude oil prices at $65.18 bbl on Friday was the lowest in the past two months.

Experts also believe the fall in the GDP numbers will lead to further liquidity easing through OMOs and rate cuts to boost growth. India’s GDP grew at 5.8% for the January to March period — the lowest in the past several years, government data showed on Friday.

Foreign portfolio investors turned net buyers in May and poured in nearly $300 million in Indian debt markets on the back of an outflow of $1.5 billion in April, signaling a global positive sentiment towards Indian debt.

Dealers also believe the central bank will want to have surplus liquidity in the coming months as it tries to fix problems with the troubled non-bank financial company (NBFC) sector. The RBI has already infused `25,000 crore through OMOs in May and plans to infuse `15,000 crore in June.

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