Indian bonds gain, rupee weakens to 1-month low on risk aversion

Indian bonds rose while the rupee weakened to its lowest level in a month on Wednesday, as expectations the U.S. Federal Reserve would soon start to unwind bond purchases gained momentum again and lifted the dollar.

Federal Reserve officials including the chairman and regional presidents of New York and Chicago concurred that the U.S. economy was close to exhibiting "substantial further progress", indicating a moderation in bond buying purchase might soon be warranted.

Fed Chairman Jerome Powell has warned that the latest increase in inflation could last longer than expected.

The partially convertible rupee was trading at 74.11/12 per dollar, as of 0622 GMT, after touching 74.1875, its weakest since Aug. 27. The pair had closed at 74.04 on Tuesday.

"The USD/INR is expected to remain under pressure today. However, a correction in crude oil prices is likely to cap the losses in the pair. We expect the USD/INR to trade in the range of 73.90-74.20," economists at HDFC Bank wrote in a note.

The dollar traded near its highest level of the year after driving higher with U.S. yields and benefiting from investor nervousness about the Fed taper just as global growth headwinds gather. [USD/]

India's benchmark 10-year bond yield was down 2 basis points at 6.21%, helped by a fall in global crude oil prices and tracking U.S. yields.

Oil prices fell for the second straight session as doubts re-emerged over demand, with COVID-19 cases continuing to rise worldwide and gasoline shortages in some regions.

Brent crude was down $1.33, or 1.68%, at $77.76 a barrel by 0555 GMT, having fallen nearly $2 on Tuesday after touching $80.75, its highest in nearly three years.

India imports more than two thirds of its oil requirements and easing global prices will help the country contain imported inflationary pressures and support the central bank's accommodative monetary policy stance.

 

(Reporting by Swati Bhat; Editing by Subhranshu Sahu)