The benchmark 10-year bond yield closed down 8 basis points at 8.17% on Wednesday.
Although the rupee recovered on Wednesday, it still remains within sight of a record low of 61.21 hit on 8 July.
Mumbai: Indian bonds gained on Wednesday after finance minister P. Chidambaram vowed to take measures to bring inflows and plug the current account deficit, while also assuring to stick to the country’s fiscal deficit target for the year.
Still, the gains were unable to prevent bonds from posting their worst month since January 2009, after RBI’s measures raised short-term rates as the central bank tried to defend the currency, putting on hold its monetary easing campaign.
Despite the gains on Wednesday, analysts remained sceptical, saying the government would need to follow up its rhetoric with concrete steps to narrow a record high current account deficit that has been a key source of rupee weakness.
Although the rupee recovered on Wednesday, it still remains within sight of a record low of 61.21 hit on 8 July. Traders will next monitor the outcome of the US Federal Reserve’s two-day policy meeting due later in the day, with markets waiting for more cues about when the monetary stimulus will start tapering off.
“I will not make much of any of the statements made today. Statements will have their own impact, but market direction will only change by what actually happens on the ground,” said Ashish Parthasarthy, treasurer at HDFC Bank Ltd.
“With liquidity remaining tight and short-end rates staying high, we could see a further uptick in yields. If, however, rupee sees some appreciation, we could see bond yields move down too,” he added.
The benchmark 10-year bond yield closed down 8 basis points at 8.17%. Total volumes on the central bank’s electronic trading platform were at a low Rs.9,900 crore.
For the month, the benchmark yield rose 73 basis points following the central bank’s cash tightening measures announced on 15 July and the additional steps unveiled on 23 July.
Bond gains on Wednesday came after Chidambaram said the government is considering all options, including a sovereign bond, selling bonds to non-resident Indians and asking state-run banks to raise overseas funds, in a bid to attract more foreign fund inflows.
Those comments offset a more mixed impact from comments by Reserve Bank of India governor D. Subbarao, who committed to stick to the defence of rupee until volatility in exchange rates subsides but also said the central bank will consider bond sales via open market operations to further drain cash.
Subbarao also appeared to condone the rise in long-term rates as a result of the central bank’s cash tightening measures, responding with a “so be it” to a question posed by an analyst at a teleconference.
The benchmark five-year overnight indexed swap rate closed up 2 basis points at 8.41%, while the one-year rate also ended up 2 basis points at 9.49%.(livemint.com)
