The Indian government bonds gained on Monday, following US trend after reading weaker than expected US May employment report, which dampened prospects for a rate increase by the Federal Reserve in the near term.
The yield on the benchmark 10-year bonds fell 1-½ basis point to 7.473 percent, yield on super-long 30-year bonds dipped 1 basis point to 7.829 percent by 07:00 GMT.
The May Labor Department employment situation report revealed overall only +38k increase in non-farm payrolls, well below market expectations for a +160k increase, as compared to the revised +123k reading in April (previous was +160k). This comes alongside a considerable decrease in the unemployment rate to 4.7 percent, below expectations for a 4.9 percent result, down from 5.0 percent. Average hourly earnings increased +0.2 percent m/m, from revised +0.4 percent m/m reading seen in April, previous was +0.3 percent m/m.
Additionally, average weekly hours held unchanged at 34.4 in May. Overall, weaker net revisions were seen in March and April (net -59k revisions).
In addition, the Reserve Bank of India is due to release its monetary policy statement next week on Tuesday 7 June (at 05:30 GMT), and is expected to leave the repo rate at 6.50 percent. The possibility of the Reserve Bank of India cutting rates further has eased out with the nation’s April inflation figures impressive. Other factors, apart from a basket of demand and supply dynamics have also played to keep the central bank away from slashing rates. A couple of domestic as well as overseas catalysts are also in place to narrow the odds out.
However, warmer than usual weather conditions, despite positive forecasts of monsoon this year, have underpinned food inflation in May 2016. Evenly spread of monsoon rains will be beneficial to keep inflation under check and prevent a disappointment over the inflationary expectations.
Yesterday, the economy expanded faster than expected in first quarter of 2016, by 7.9 percent y/y, higher than the market consensus of 7.5 percent y/y after a downwardly revised reading of 7.2 percent y/y in Q415, reinforcing our view that India is a bright spot in Asia. And we believe that this is going to continue in the coming quarters as private and government consumption will remain strong.
In additions, markets will look forward to cues on arrival and distribution of annual monsoon rainfall. According to Reuters, India will auction 40.46 billion rupees of unutilised limits for foreign investment in government bonds today. Separately, the RBI may announce details of government bond auction worth 150 billion rupees scheduled for this week.
Meanwhile, the Sensex fell 0.04 percent or 10.42 points to 26,832.61 and Nifty-50 futures trading rose 0.21 percent or 17.5 points at 8,250 by 07:00 GMT.
The material has been provided by InstaForex Company – www.instaforex.com