MUMBAI: India’s 10-year government bond yield logged its biggest jump in six weeks on Thursday, as hawkish comments from Federal Reserve Chair Jerome Powell reduced rate cut hopes, adding to the domestic market’s woes as demand and liquidity concerns persist.
The yield on the benchmark 10-year note settled at 6.5730%, up 4 basis points from the previous session, its steepest rie since September 18.
Yields move inversely to bond prices.
The Fed cut interest rates by a quarter of a percentage point on Wednesday as expected, but drove down market expectations of a December rate cut.
The odds of a December rate cut receded to 68%, from 91% before the Fed policy, according to CME FedWatch Tool.
The yield on the Indian 10-year note breached a key upside level in early deals, which led to an extended sell-off, traders said.
The market is counting on the Reserve Bank of India to shore up banking system liquidity and traders are tracking news on potential U.S.-India trade deal that could impact domestic monetary policy.
India bonds inch up ahead of Fed meet; liquidity strains persist
“From Indian bond markets perspective, focus now shifts to trade negotiations between India and the U.S., extent of rupee depreciation, and the RBI’s liquidity management approach,” said Naval Kagalwala, chief operating officer and head of products, Shriram Wealth.
India’s banking system liquidity has swung between deficit and surplus in the past few weeks, with negligible net liquidity injections amid the RBI’s interventions to anchor the rupee.
A 320 billion rupee ($3.62 billion) bond sale on Friday will be key for cues on demand.
RATES
India’s overnight index swap rates ended higher on the hawkish tilt to U.S. central bank policy that put pressure on the rupee.
The one-year OIS rate rose 1.5 bps to 5.48% and the two-year rate closed 2.25 bps up at 5.4375%.
The five-year swap rate settled 2.5 bps higher at 5.685%.
American Dollar Exchange Rate