Benchmark yield at 11-wk low as Fed comments lift sentiment

By Dharamraj Dhutia

MUMBAI, Dec 1 (Reuters) - Indian government bond yields declined on Thursday, with the benchmark yield ending at its lowest level in eleven weeks, after Federal Reserve Chair Jerome Powell struck a more dovish tone than the market expected on interest rates.

The benchmark 10-year yield IN072632G=CC ended at 7.2095%, its lowest since Sept. 15, after ending at 7.2798% on Wednesday. The yield also posted its biggest single-session fall, in terms of basis points, since Oct. 4.

"Market sentiment is now bullish, with expectations that the next rate hike (in India) would be the last one, and hence there is constant demand for bonds, leading to a fall in yields, said Ajay Manglunia, managing director and head of investment grade group at JM Financial.

Fed Chair Powell said the U.S. central bank could ease the pace of interest rate hikes "as soon as December" but warned that the fight against inflation was far from over.

U.S. Treasury prices rose after the comments, with the yield on the 10-year note US10YT=RR declining to 3.60%, its lowest in nearly two months.

The Fed funds futures have raised the chances of a 50-basis points (bps) hike at the next policy meeting to 91%, from 83% just before Powell's comments. The Fed has raised rates by 375 bps so far in 2022 to the 3.75%-4.00% range.

A relatively less hawkish Fed could also release the pressure from the Reserve Bank of India to hike rates. The RBI's Monetary Policy Committee (MPC) next meets on Dec. 7. It has raised the repo rate by 190 bps since May, to 5.90%.

J.P. Morgan expects the RBI to hike rates by 35 bps in December, which would be the last in the cycle, resulting in a terminal rate of 6.25%, even as retail inflation is expected to be sticky and average 6.5% till March.

"The MPC is likely to look through this and believe that, with monetary policy operating with long and variable lags, slowing growth momentum in the coming quarters will eventually have a salutary impact on price pressures."

India's economy grew 6.3% in the July-September quarter, less than half the 13.5% growth in the previous three months, and growth for the full year is likely to be in the 6.8%-7% band, the government's chief economic advisor, V. Anantha Nageswaran, said.
Reporting by Dharamraj Dhutia; Editing by Savio D'Souza

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.