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Saturday, Aug 24, 2019

Bonds in India decline as traders scale back big rate cut hopes

The Reserve Bank of India lowered its benchmark repurchase rate by an unprecedented 35 basis points to 5.4%, adding to its three cuts earlier this year.

business Updated: Aug 07, 2019 15:04 IST
Subhadip Sircar  and Kartik Goyal
Subhadip Sircar and Kartik Goyal
Bloomberg
The central bank delivered a higher-than-expected rate cut in a split verdict.
The central bank delivered a higher-than-expected rate cut in a split verdict.(REUTERS Photo)
         

Sovereign bonds were little changed in India as the central bank delivered a higher-than-expected rate cut in a split verdict.

The yield on the benchmark 10-year debt fell as much as 7 basis points, before erasing losses to trade at 6.33%. The rupee lost 0.2%.

The Reserve Bank of India lowered its benchmark repurchase rate by an unprecedented 35 basis points to 5.4%, adding to its three cuts earlier this year, citing weak domestic activity and worsening global trade conditions.

Four of the six member panel voted for a 35 basis points cut while two voted for a 25 basis point reduction, a fact which kept traders guessing about the size of future rate cuts.

“Market was very long going into the policy and hence what we are seeing is a bit of re-balancing,” said Vijay Sharma, executive vice president for fixed income at PNB Gilts in New Delhi. “There is a bout of profit booking also happening.”

Yields fell 51 basis points in July amid a global bond rally that saw global funds flocking to rupee debt amid a sea of negative global yields. Their purchases of $1.2 billion of bonds last month was also prompted by the government’s pledge to keep its budget deficit in check and a proposal to shift a part of the record federal borrowing overseas.

The latest escalation in the U.S.-China trade war has sent investors rushing once more to haven assets, pushing the world’s stockpile of negative-yielding bonds over $15 trillion. The Trump administration labelled China a currency manipulator after the Asian nation led the yuan sllide past 7 to the dollar on Monday.

(The story has been published from a wire feed without any modifications to the text)

First Published: Aug 07, 2019 15:04 IST

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