Govt bonds, rupee seen gaining as India-Pakistan border tensions ease

Bond yields may ease 3-4 bps while rupee likely to stabilise near 85 mark as ceasefire and RBI's support measures improve sentiment in bond and currency markets

Government bonds and rupee were expected to strengthen on Tuesday after India and Pakistan tensions eased after both the countries reached an understanding.

 

Bond dealers said that the 10-year benchmark government bond yield was expected to soften by 3-4 basis points on Tuesday as the market sentiment remained strong on the back of Open Market Operation auctions conducted by the Reserve Bank of India (RBI).

 

“We might open 3 basis points- 4 basis points (yield on benchmark bond) lower on Tuesday because of the understanding between the two countries. Now, we are looking at rate cut and the liquidity infusion through OMO, which is positive for the market,” he added.

 

The benchmark yield had settled at 6.38 per cent on May 9 after moving beyond the psychologically crucial 6.40 per cent mark during the week. 

 

The rupee depreciated by 0.98 per cent during the week. On Thursday, the domestic unit experienced its steepest single-day decline in over two years, erasing all gains for both the current calendar and financial years. However, the central bank’s intervention through dollar sales helped stabilise the currency, leading to a recovery on May 9. By the end of the week, the rupee had appreciated by 0.27 per cent for the calendar year and 0.1 per cent for the financial year.

 

“We expect the rupee to open near 85 per dollar mark, if not beyond. The dollar index will be in focus, because after the pause (by the US Federal Reserve), there is upside risk there. The volatility should settle now,” said the treasury head at a private bank.

 

On May 9, rupee snapped three consecutive days of losing streak to settle 34 paisa stronger at 85.38 per dollar, against the previous close of 85.72 per dollar, on the back of dollar sales by the central bank, after falling 85.87 per dollar against the greenback in the early trade.