Indian bonds rise on PSB buying; appointment of new RBI governor eyed

The Indian government bonds traded firmer on Tuesday as public sector banks (PSBs) continue buying sovereign bonds amid hopes of further monetary easing from the central bank. Also, investors remained cautious ahead of the appointment of the new RBI governor.

The yield on the benchmark 10-year bonds, which moves inversely to its price fell 2 basis points to 7.273 percent, the yield on super-long 30-year bonds dipped more than 1 basis point to 7.596 percent and the short-term 3-year note yield down 2 basis points to 6.647 percent by 07:00 GMT.

India’s wholesale price index (WPI) inflation surged to 20-month high in June, indicating that the Reserve Bank of India (RBI would not ease its key policy rate immediately. India’s wholesale prices, as measured by the wholesale price index (WPI) for the month of June, surged on rise in food and fuel prices, which has raised concerns that the Reserve Bank of India (RBI) may not be able to slash rates at the up-coming policy meeting. The RBI has targeted to reach inflation at 5 percent by March 2017, to necessitate an easing bias.

The Indian wholesale price index (WPI) inflation jumped to 1.6 percent y/y in June, higher than the market consensus of 1.19 percent, as compared to 0.79 percent in May. The rise in inflation was majorly driven by the higher price of petrol, diesel, kerosene, LPG, furnace oil and aviation turbine fuel.

Moreover, the consumer inflation rose 5.77 percent in June, a bit higher than the market consensus of 5.73 percent, as compared to 5.76 percent in May.

In addition, investors await the announcement of the new RBI chief in the Parliament. Markets anticipate the declaration of the new Governor to happen in the monsoon session of the Parliament.

According to Reuters, the RBI will auction four bonds worth 150 billion rupees on July 22, including 80 billion rupees of the benchmark bond, which was along the expected lines.

Meanwhile, the Sensex trading flat at 27,746.76 and Nifty-50 futures trading 0.34 percent higher or 29 points at 8,541.75 by 07:30 GMT.