Bond yields fall to 4-month low

Government bond yields fell to a four-month low on Wednesday after the Reserve Bank of India (RBI) signalled it would ease monetary policy if consumer-price gains slow more than anticipated.

Should disinflation be faster than expected, “it will provide headroom for an easing of the policy stance,” RBI said in a statement on Tuesday after it left the repo rate at eight per cent in its bi-monthly monetary policy review.

The yield on the 10-year bond ended at 8.62 per cent on Wednesday compared with the previous close of 8.74 per cent. According to bond market traders the rally is seen continuing.

“The yield may hit 8.50 per cent soon. However, there will be more clarity for the market in the Budget,” said Balginder Singh, a government bond dealer at Andhra Bank.

Meanwhile, the rupee ended higher on Wednesday on foreign fund inflows into debt and equity, though a sharper rise was capped by heavy dollar demand from importers.

The rupee ended at 59.34 to the dollar compared with its previous close of 59.39. The rupee had opened at 59.41 and during intra-day trades it touched a high of 59.19 and  low of 59.45 to the dollar.

The sentiment remains supported after RBI measures on Tuesday to allow foreign investors to trade in exchange-traded currency derivatives, although the impact is not expected to be immediate.