Bonds see biggest monthly fall in seven but gain on quarter
Government bond yields ended little-changed on Monday, ending their worst month in seven as the violence in Iraq has threatened to push up global crude oil prices and lead to a spike in domestic inflation.
Mumbai: Government bond yields ended little-changed on Monday, ending their worst month in seven as the violence in Iraq has threatened to push up global crude oil prices and lead to a spike in domestic inflation.
India imports two-thirds of its oil needs and higher global crude prices can push up the current account deficit while also increasing the government`s subsidy burden and pressuring inflation higher.
These concerns have stopped a rally which started in May spurred by optimism that the election of Narendra Modi as prime minister would usher a period of economic reforms, which culminated with the benchmark 10-year bond yield hitting a four-month low on June 6.
Still, although the 10-year yield rose 10 basis points in June, its biggest monthly rise since November, it still fell 6 bps in the April-to-June period, which was the best quarter for bonds since the June quarter of 2013.
Dealers expect investors to remain on the sidelines ahead of the new government`s budget which will be unveiled on July 10 and the wholesale and consumer inflation indicators later this month, although analysts see opportunistic buying as well.
"There was some quarter-end buying seen earlier today and some value buying as well. The CPI/WPI releases, apart from the budget could give a positive trigger for bonds," said Bekxy Kuriakose, head of fixed income trading at Principal PNB Asset Management.
The benchmark 10-year bond yield ended down 1 basis point at 8.74 percent.
Yields had initially fallen after Brent crude oil dropped below $113 a barrel on Monday as fears of a disruption to oil output from Iraq receded.
But they rose 3 bps at one point after domestic news agency Cogencis reported the RBI had indicated to some banks it would reduce the limit on held-to-maturity bond requirements, citing "industry sources".
Volumes in the bond market stood at 190.95 billion rupees ($3.17 billion). Though quarterly average volumes are still just about a third of their peak, the June quarter saw the highest average quarterly volume in a year at about 380 billion rupees.
In the overnight indexed swap market, the benchmark 5-year swap rate closed down 2 basis points at 7.89 percent, while the 1-year rate ended 1 bp lower at 8.36 percent.