A combination of factors, including a less hawkish tone from members of the Monetary Policy Committee (MPC), falling global crude oil prices and a rush by traders to cover short positions led to a sharp drop in government bond yields. ‘State.
This comes even as the general sentiment of an impending rate hike is still looming to counter rising prices.
The 10-year government bond yield ended the day at 7.04% from the previous close of 7.17%. The rally in bond prices is the largest since September 2020.
Yields jumped 22 basis points (bps) after the April 8 monetary policy review, as the Reserve Bank of India (RBI) focused on tackling inflation. This is a break with its support for growth position, which had been in effect for two years.
Yields tightened further after March CPI inflation figures were close to 7%. This is much higher than the RBI’s upper 6% tolerance level.
However, the MPC minutes, which were released on Friday, showed members are still concerned about growth and inflation.
“Coming out of the Omicron wave, India’s economic recovery remains on track, although there are weak spots. Private consumption and investment are still subdued and contact-based services, although catching up, have yet to fully recover,” RBI Governor Shaktikanta Das said, according to the lawsuit. verbal.
Falling crude oil prices and the absence of announcements of government development loan auctions also contributed to dampening returns.
“After hitting a three-year high of 7.28 percent, India’s 10-year bond yield has cooled to nearly 7 percent. The monetary policy stance of global central banks has changed.
So the political position of RBI cannot be on another page,” said Vishal Amarnani, Head of Fixed Income, Emkay Wealth Management.
“The decline in yields could also be due to RBI buying or the injection of cash into the system. We still expect the G-Sec to hit 7.35% first. not maintain at this level, it could reach 7.60%,” added Amarnani.
The rupee weakened 20 paise against the dollar on Monday as investors rushed to safe havens. The dollar index jumped as rising inflation could lead to a faster interest rate hike by the US Federal Reserve.
“The Rupee, after opening on a flat note, fell on general dollar strength against its major crosses and weakness in domestic equities. Market Sentiment The dollar strengthened after the Federal Reserve Chairman hinted at aggressive rate hikes in the near future,” said Gaurang Somaiya, forex and bullion analyst, Motilal Oswal Financial Services.