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The Indian government bonds slumped Tuesday as investors cashed in profit after relishing long winning streak. Also, we foresee that the 10-year bond yield is expected to fall below 6 percent mark on rising consensus of December repo rate cut.
The yield on the benchmark 10-year bonds, which moves inversely to its price, rose nearly 2 basis points to 6.32 percent and the yield on 3-year note bounced 1-1/2 basis points to 6.14 percent by 07:00 GMT.
Twenty Indian states will raise at least 190.85 billion rupees by selling bonds maturing in four, five, six, 10 and 15 years today. Though the quantum at the sale is more than scheduled, the sentiment is bullish due to the demonetisation-driven liquidity boost, Reuters reported.
State-run banks net sold bonds worth around 126 billion rupees yesterday and have net sold 228 billion rupees since Nov. 9, when the currency demobilisation came into force, data from Clearing Corp of India Ltd. showed. The benchmark yield has fallen by 48 basis points during this period, they added.
India’s October consumer price index (CPI) Inflation fell to 14-month low to 4.20 percent m/m, compared to 4.31 percent m/m. Food Inflation came in at 3.2 percent as against 3.96 percent in September 2016. Further, cereals and products Inflation rose 4.4 percent over 4.17 percent, data released showed Tuesday.
Additionally, October wholesale price index fell unexpectedly to 3.39 percent led by easing prices of food items and non-food items, against market expectations for a rise to 3.75 percent, from 3.57 percent in the preceding month. Surprisingly lower inflation rate bolstered hopes for a December interest rate cut by the Reserve Bank of India (RBI).
The Indian central government, led by Prime Minister Narendra Modi abolished the circulation of INR500 and INR1,000 notes in order to curb black money. Further, Modi suggested the Indian citizens to exchange the respective notes from any commercial banks or nearby post office from November 10 to December 30.
The recent demonetisation drive of India government could be disinflationary in the near term and therefore strengthen the case for the Reserve Bank of India to ease in December.
The RBI next bi-monthly two-day monetary policy meeting is scheduled to be held on December 6-7. It is widely expected that the current trend of lower inflation expectations will space for the Governor Urjit Patel for further monetary easing.
Meanwhile, the Sensex rose 0.18 percent or 45.12 points to 25,810 and Nifty-50 futures traded 0.39 percent higher or 31.65 points at 7,990.25 by 07:10 GMT.
