MUMBAI – Indian government bonds were trading sideways on Thursday, as market participants awaited the Reserve Bank of India’s (RBI) first monetary policy decision for this fiscal year, due on Friday.
The yield on the benchmark 10-year was at 7.1004% as of 10:00 a.m. IST, following its previous close of 7.1030%. India’s financial year started April 1.
“This is the level for benchmark at which the market will enter the central bank policy decision, and if there is more hawkishness, a test of 7.15% remains on the cards,” a trader with a primary dealership said.
The central bank is unlikely change key rates for a seventh consecutive meeting, but focus will be on commentary on inflation as well as liquidity management.
Strong economic growth and moderating inflation will allow the RBI to keep interest rates on hold until July, economists have said.
Bond market sentiment remains cautious amid rising oil prices, with the benchmark Brent crude contract moving towards $90 per barrel mark amid supply concerns. Elevated oil prices could impact inflation for a large importer like India.
At the previous meeting, RBI Governor Shaktikanta Das had stressed that the central bank may consider rate cuts only once inflation eases towards the 4% target on a sustainable basis.
Investors were also cautious as bond auctions from this week will be based on the so-called multiple price method, which could impact bidding.
New Delhi will sell 380 billion rupees ($4.55 billion) of bonds Friday, including 200 billion rupees of a new 10-year, which will replace the existing benchmark in the coming weeks.
Meanwhile, U.S. bond yields stayed elevated as recent strong economic data led to concerns over the timing and quantum of rate cuts by the Federal Reserve this year.
The 10-year U.S. yield was around 4.35% handle, a key technical level. ($1 = 83.4350 Indian rupees)
