Indian government bonds rose in
early deals on Wednesday, after a soft inflation print in the
world’s largest economy eased concerns of an immediate rate hike
by the Federal Reserve.
The benchmark 6.94% 2036 bond yield was at 6.7703% as of 10:40 a.m. IST, after ending at a three-week high of 6.7945% in the previous session. Bond yields move inversely to prices.
U.S. Treasuries rose, with the 10-year yield easing below
the 4.60% handle after relief from softer-than-expected
inflation data. Consumer prices rose less than forecast in June,
prompting markets to scale back expectations of near-term Fed
hikes.
The probability of a 25-basis-point rate increase at the
July meeting fell to 17% from 42%, per CME Group’s FedWatch
tool. For September, markets priced in a 60% chance of a hike,
down from 75.1% on Monday.
“Bonds were in an oversold zone after yesterday, and some
reversal was on the cards, and with rising chances of a delay in
the Fed’s rate hike cycle, we could see the yield easing below
the 6.75% mark soon,” a trader with a private bank said.
Markets largely ignored a further rise in oil prices after
U.S. President Donald Trump re-imposed a naval blockade on all
Iranian ports and Iran struck U.S. infrastructure in the region.
Higher oil prices worsen India’s inflation as the nation is
the third largest importer of crude.
Retail inflation in June rose 4.38%, breaching the Reserve
Bank of India’s target for the first time in 17 months, but some
brokerages have trimmed their rate hike calls as they expect
inflation for the fiscal year will average below the central
bank’s estimates.
Bets that Indian debt would be included in Bloomberg’s
Global Aggregate Index cushioned market sentiment. Foreign
investors have channelled about $4.2 billion into bonds under
the so-called fully accessible route since June 1.
RATES
India’s overnight index swap rates eased tracking Treasury
yields, reversing a part of the jump from the previous session.
The one-year eased 3 bps to 5.90%. The
two-year rate and five-year rate were down 4
bps each to 6.07% and 6.33%, respectively.