India 10-year bond yield posts steepest drop in 32 months as inflation eases

The benchmark 10-year yield ended at 7.2798% on Wednesday, easing by 16 basis points (bps) for the month, its biggest drop since March 2020. The 10-year U.S. yield, in comparison, is down 35 bps for the month.

The Indian benchmark yield also posted its first monthly fall in three, having risen by 21 bps in September and five bps in October.

“Market participants are not at all worried about another 50 bps rate hike, and things changed after softer inflation reading,” said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.

“Traders may try to break the crucial 7.25%-7.26% levels on the downside in the run-up to the monetary policy decision.”

Bond yields dropped after lower inflation readings in the United States as well as India recently, which, according to market participants, indicates the central banks in both nations to go slow on future rate hikes.

India’s retail inflation eased to a three-month low of 6.77% in October, helped by a slower rise in food prices and a higher base effect, from 7.41% in September.

The reading, however, was above the central bank’s upper tolerance level for the tenth straight month.

The Reserve Bank of India has raised its key policy rate by 190 bps from May to September to tackle elevated inflationary pressures but is expected to cut the quantum to 35 bps in December.

The Federal Reserve, meanwhile, is expected to temper its policy to a 50 bps rate hike in December, after four back-to-back 75-bps moves between June and November.

India’s benchmark bond yield may have already peaked, according to a Reuters poll of market strategists, who also say the RBI’s impending shift away from tackling inflation back to supporting the economy is not far off.

The fall in bond yields was also aided by constant purchases from foreign participants this month.

While foreign investors net bought government securities worth more than 31 billion rupees ($380.7 million) up to Nov. 29, foreign banks’ net purchased bonds worth over 153 billion rupees, data showed.

This story has been published from a wire agency feed without modifications to the text.