India 10-year bond yield hits 4-month low on easing inflation outlook

MUMBAI – India’s 10-year government bond yield declined in early trade on Monday, falling below the critical 7.15% mark to a near 4-month low, as prospects of lower inflationary pressures powered bullish bets.

The 10-year benchmark bond yield was at 7.1350% as of 10:00 a.m. IST, following its previous close of 7.1791%. The yield eased to 7.1321% earlier in the session, its lowest since Sep. 25.

“The fall in core inflation is a bit surprising, and market is ignoring the headline number and reacting more to easing core prices, which is pointing at lower inflationary pressure in coming months,” trader with a state-run bank said.

India’s annual retail inflation rose 5.69% on-year in December from 5.55% in November amid higher food prices, but the reading was lower than a Reuters poll of 5.87%.

Core inflation, however was estimated at 3.8%-3.89%, compared to 4.05%-4.2% in November, according to economists.

As inflationary pressures are seen easing, the chances of a change in stance of the Reserve Bank of India’s Monetary Policy Committee in February are rising, Citi said.

“In our base case, we still expect stance change to neutral in April, but February is now becoming a live policy for its consideration,” the bank said in a note. The MPC has maintained status quo on rates and stance in this financial year, as it focuses to align inflation to its medium-term target of 4%.

U.S. yields eased last week, after December producer prices data fell unexpectedly, raising bets of an early interest rate cut by the Federal Reserve.

The 10-year yield eased 9 basis points last week, ending at 3.95% on Friday, after rising 18 bps in first week of January.

The odds of a rate cut by the Fed in March rise to 73%, up from 68% last week, according to the CME FedWatch tool.



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