Govt bond yields retreat from day’s lows on profit booking; rupee ends up
Mumbai: India’s 10-year bond yield pulled back from its day’s low on Thursday, as state-run banks likely sold into the recent rally. The rupee gained for a fifth straight session as oil got cheaper.
Yields started the day lower, touching 7.07% in the morning as US Treasury yields and crude prices slipped and investors bet that the US-Iran standoff might ease. The drop didn’t last. The 10-year couldn’t stay below 7.10%, spent most of the day between 7.10% and 7.15%, and closed at 7.17%.
Traders also stayed on the sidelines before Friday’s auction, where the government wants to raise ₹36,000 crore by selling bonds that mature in 2041 and 2076.
The rupee ended at 94.48 per dollar, down from 94.65 on Wednesday, according to data from Bloomberg. A near 9% overnight fall in Brent crude and a softer dollar helped.
“After the repricing, tomorrow (Friday) is the first auction, and it’s a very heavy duration auction. So, I think the market is just trying to see whether these levels will hold or whether there is demand from banks. So, it will take some time to establish these new levels,” a senior treasury official at a private sector bank said.
According to the official, banks made space for fresh supply ahead of Friday’s gilt auction. Uncertainty surrounding US President Donald Trump’s next moves remained a concern for bond traders. “That risk doesn’t go away. That uncertainty remains,” the official said.
Gopal Tripathi, treasury head at Jana Small Finance Bank, said that 7.14-7.15% was an important level for the 10-year yield and said a sustained break below 7.10% could open the way for yields to move towards 6.90-6.95%. However, such a move would require crude oil prices to decline further towards the $80-85 per barrel range or lower.
The domestic currency touched an intraday high of 94.3200 per dollar but failed to sustain its gains as dollar demand from importers emerged around 94.50 and the Reserve Bank of India’s likely intervention at 94.35.
The sentiment towards the domestic currency had improved significantly, aided by foreign portfolio inflows, lower crude oil prices, expectations of possible long-term capital gains tax relief from the government and the outcome of the US midterm elections, said Ritesh Bhansali, deputy chief executive officer at Mecklai Financial Services.
“Sentiment has suddenly changed towards the rupee’s favour,” he said, adding that the currency could test 93.80-94.00 per dollar in the near term.
Tripathi said movements in crude oil prices would be crucial in determining the trajectories of both the rupee and bond yields. He said that the geopolitical risk premium that had pushed the 10-year yield towards 7.50% had eased, although further declines would depend on developments in West Asia.
For Friday, traders will track demand at the gilt bond auction, crude oil prices, movements in US Treasury yields and developments surrounding the US-Iran conflict. The rupee is expected to trade in the 94.20-94.60 per dollar range, with dealers seeing strong technical resistance around 94.20.
