MUMBAI: Indian government bond slumped to a three-week low on Friday after the rupee hit a fresh record low, sapping risk appetite and fuelling a broad selloff in the debt market.
The benchmark 10-year yield ended at 6.5665%, its highest level since October 31. It settled at 6.5324% in the previous session.
Bond yields move inversely to prices.
The Indian rupee slumped to a fresh record low in its biggest single-day decline since May, battered by portfolio outflows, uncertainty over a U.S.-India trade deal and a pullback in the central bank’s defense of a key level.
The south Asian currency fell to an all-time low of 89.49 against the U.S. dollar.
Following the rout in the rupee, the 10-year yield closed above the strong technical resistance level of 6.55% for the first time since October 30, raising fears the breakout could trigger further selling in bonds.
“A weaker rupee may lead to higher yields, as currency risk premium rises – investors demand more yield to compensate,” said Kunal Sodhani, vice president at Shinhan Bank India.
The market had firmed in the first half of the session after a better‑than‑expected cutoff at the weekly debt auction reinforced bets that core long‑term investors are returning to the segment.
The Reserve Bank of India sold bonds worth 300 billion rupees during the day, including a near 50-year note, for which the cut-off yield was set at 7.3889%, below traders’ estimate of 7.41%.
Market participants are now on edge, closely tracking development in the long-delayed U.S.-India trade deal.
RATES
India’s overnight index swap (OIS) rates rose across tenors after a weaker rupee stoked a selloff in the bond market.
The one-year OIS rate jumped 2 bps and the two-year rate was up 1.5 bps, while both ended at 5.48%. The liquid five-year rate rose 1.5 bps to end at 5.7725%.
American Dollar Exchange Rate