The Indian government bonds continue to trade lower on Tuesday amid weak appetite, after an auction of unutilised limits for foreign investors in sovereign papers went undersubscribed for the first time in 2-years. Also, investors shifted from safe-haven buying after data showed higher than expected April wholesale inflation figure on Monday, raised concerns that the Reserve Bank of India (RBI) may not be able to slash rates at the up-coming policy meeting.
The yield on the benchmark 10-year bonds, which moves inversely to its price rose 0.05 pct to 7.458 pct, the yield on 12-year bonds rose 0.17 pct to 7.793 pct, 19-year bonds yield rose 0.18 pct to 7.776 pct and the yield on the 2-year bond climbed 0.06 pct to 7.119 pct by 0715 GMT.
According to recent Reuters report, India's auction to allocate unutilised limits for foreign portfolio investment in government bonds was not fully subscribed to, as bids were lower than the limits on offer yesterday. The auction by the National Stock Exchange saw bids for around 29.57 billion rupees, against 33.40 billion rupees of unutilised debt limits on offer. The cut-off at the auction was set at a nominal 0.0001 bps. India allows foreign investors to buy government bonds worth 1.40 trillion rupees, of which 97.56 pct was utilised as on May 13, data from the National Securities Depository Ltd. showed.
“We may see more of such partial subscriptions at auctions hereon, as foreign investors have slowed their purchases and there is little positive to support prices and we may see them under pressure today,” said a dealer with a private bank to Reuters.
The India Meteorological Department (IMD) in its first monsoon forecast for 2016 said that monsoon is likely to hit Indian coast 6-days later than normal. Moreover, the India's wholesale price index (WPI) rose 0.34 pct in April (after staying in negative zone for 17 straight months), higher than the market expectation of 0.20 pct fall, from down 0.85 pct in the preceding month. Last week, the India’s retail inflation accelerated in April to 5.39 pct y/y (the fastest pace of annual expansion since January), higher than the market consensus of 5.0 pct y/y, from 4.83 pct in March. The acceleration in inflation was mainly driven by the rise in food prices, which increased more than expected to 1.4 pct m/m in April. The Reserve Bank of India had slashed its benchmark policy rate by 25 bps to 6.5 pct in April, but is widely expected to keep rates unchanged at a June 7 meeting. The RBI aims to keep inflation at 5 pct by March 2017 and lower it to 4 pct a year after that.
Meanwhile, Sensex rose 0.85 pct or 218.86 points to 25,872.09 and Nifty-50 futures jumped 0.73 pct or 57.70 points to 7,943 by 0715 GMT.
The material has been provided by InstaForex Company – www.instaforex.com