Bond yields soften tracking US yields, profit booking caps gains

The government bond yields softened below the psychologically crucial 6.30 per cent mark in early trade on Wednesday, tracking the fall in US Treasury yields coupled with strong buying momentum in the gilts market, said dealers. However, traders sold bonds at a profit in the latter half of the day, causing the benchmark 10-year government bond yield to settle little changed at 6.33 per cent, against the previous close of 6.34 per cent.

 

“The buying momentum is there, and given the fall in US yields, the yield breached the 6.30 per cent level (yield on benchmark 10-year bond),” said a dealer at a state-owned bank. “There was profit booking later because these are some good levels to make profit,” he added. 

 

The yield on the 10-year Treasury declined on Wednesday after President Donald Trump reversed his comments about firing US Federal Reserve Chairman Jerome Powell. The 10-year US Treasury bond yield fell by around 10 basis points to 4.29 per cent.

 

On the domestic front, market participants said that the benchmark yield is expected to move in a narrow range of 6.30 per cent to 6.35 per cent in the near term.

 

“We expect the yield (yield on benchmark bond) to move between current levels because 6.25 per cent won’t be seen soon,” said a dealer at another state-owned bank. “Levels like 6.20 per cent and 6.25 per cent can be seen by June, maybe around the time of the next Monetary Policy Committee meeting,” he added.

 

The Reserve Bank of India’s Monetary Policy Committee had cut the repo rate by 25 basis points and had changed the stance to accommodative from neutral, lending strong buying momentum to the gilts market. The central bank has also been infusing durable liquidity, with a Rs 20,000 crore worth of Open Market Operations purchase scheduled on April 29. The net liquidity in the banking system was in a surplus of Rs 38,243 crore on Tuesday, latest data by the RBI showed.