The Indian 10-year bond yield is unchanged on Monday, as investors awaits Tuesday’s March retail inflation figure. The benchmark 10-year bonds yield, which is inversely proportional to the price of bonds stood at 7.44 pct as compared to 7.46 pct on Friday by 6:30 GMT.
The CPI for March is due on Tuesday. We estimate that CPI inflation has likely dropped to 5.0% y/y in March from 5.2%, driven by continued softness in food prices. If this print indeed materialises, it will likely be viewed as a ‘good’ number by markets, given it is below the RBI’s 5% target, from the point of view of keeping alive prospects for another rate cut by the RBI sometime later in 2016. According to our estimates the sub-5% prints are likely to prove temporary rather than be sustained through 2016.
“We expect Government bonds yield to be in a range of 7.4-7.7 pct. The RBI’s comment on having a neutral liquidity situation is a clear signal that there will be OMOs that will support the market. So open market operations activity will be fairly high”, said Tushar Pradhan, chief investment officer, HSBC Mutual Fund.
“From May and June, supply of government bonds will start building up as the government will start borrowing, states will start borrowing and Uday bonds will be out. There will be natural pressure on yields going up because of the sheer supply”, he added.
Lastly, we foresee that Indian government bonds are likely to gain, as investors may buy notes on expectations that the nation's retail inflation numbers, due tomorrow, will have eased further. The yield on the benchmark 7.59 pct bond maturing in 2026 is likely to trade in a 7.43 -7.47 pct range.
The material has been provided by InstaForex Company – www.instaforex.com