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The Indian 10-year bond yield is unchanged on Thursday despite weak stock market. Indian equity markets remained under pressure after making a flat opening. Weakness in other Asian markets too weighted down sentiments. The benchmark 10-year bonds yield, which is inversely proportional to the price of bonds stood at 7.46 pct as compared to 7.62 pct on Wednesday.
The bonds prices snapped a long rally as the RBI cut the policy rate by 25bps to 6.50% on Tuesday, the lowest level since March 2011.
The Nikkei composite PMI rose to 54.3 in March from 51.2 in February, the highest reading since February 2013; the new orders sub-index rose to 54.1 in March from 51.6 in February. Similarly, the services PMI jumped to 54.3 in March from 51.4 in February; the employment sub-index rose to 50.3 in March from 50.2 in February, the highest reading since June 2015.
Finance minister Jaitley said that interest rates need to be more competitive; the government is trying to allocate additional resources for capital infusions into state-run banks; progress is expected in divestment of state-run companies in FY17; the government is working to ease the burdens of doing business in the country and improve the tax regime; lower oil prices have enabled the government to improve public spending.
“We expect Government bonds yield to be in a range of 7.4-7.7 pct. The RBI’s comment on having a neutral liquidity situation is a clear signal that there will be OMOs that will support the market. So open market operations activity will be fairly high”, said Tushar Pradhan, chief investment officer, HSBC Mutual Fund.
“From May and June, supply of government bonds will start building up as the government will start borrowing, states will start borrowing and Uday bonds will be out. There will be natural pressure on yields going up because of the sheer supply”, he added.
We foresee, besides cutting rates by 25 bps to a more than 5-year low, the Reserve Bank of India also dangled the prospect of another cut later this year if inflation trends stay benign.
Meanwhile, the BSE Sensex is currently trading at 24832.13, down by 68.5 points and Nifty 50 down 0.39 pct at 7585.55 by 7:30 GMT.
