Indian bonds steady in quiet trade, focus on retail inflation data

The Indian government bonds traded nearly flat in quiet trade Monday as investors awaited for the retail inflation figure, due to be released Tuesday at 12:00 GMT.

The yield on the benchmark 10-year bonds, which moves inversely to its price hovered around 7.385 percent, the yield on short-long 3-year bonds rose 1/2 basis point to 7.051 percent and the yield on super-long 30-year bonds remained steady at 7.696 percent by 07:10 GMT.

June CPI inflation is expected to marginally ease to 5.6 percent y/y from May’s 5.8 percent but a shade above January-May average of 5.4 percent. Food prices are likely to account for a bulk of the pick-up, consisting of perishables (vegetables etc.) and non-perishables, especially sugar and related products. Domestic fuel prices have also risen in the month, mirroring global trends, DBS reported.

The May release showed CPI inflation increased to 5.8 percent y/y, as food inflation increased to 7.6 percent y/y. Further, the arrival of strong rains across all parts of the Indian sub-continent has raised hopes of a slowdown in agricultural food prices. However, upcoming public sector wage and pension increases are likely to cushion any further fall in inflation.

Lastly, we continue to see upside risks to the RBI’s inflation forecast of around 5 percent in FY17 and think that sticky service sector inflation will remain the main obstacle to the central bank easing further. We think that CPI inflation stayed at 5.8 percent y/y in June.

Meanwhile, the Sensex rose 1.79 percent or 485.44 points to 27,612.34 and Nifty-50 futures trading 1.62 percent higher or 135 points at 8,477.5 by 07:30 GMT.