Rupee, bond may stay calm as Fed's $15-bn taper on expected lines

The US Federal Reserve’s $15 billion monthly taper is unlikely to affect India’s bond and currency market, as global markets, including in India, were prepared for up to $20 billion cut-back a month. 

 “The taper was mostly factored in and will only have a marginal impact. There is no tantrum, rather it is happening smoothly this time,” said Joydeep Sen, consultant, fixed income, at Phillip Capital. 

“Maybe we will see some nominal incremental impact when it actually happens, but there are so many factors in a dynamic market,” Sen said. 

The US Federal Reserve said it would start its tapering later this month. It will buy $10 billion less in treasuries and $5 billion in mortgage-backed securities. The US Fed also said inflationary pressures would last well into next year.  

The 10-year bond yield had closed at 6.34 per cent on Wednesday. The market was closed on Thursday and Friday.

Bond dealers expect the yields to rise as much as 6.50 per cent by March if the RBI doesn’t forcefully want to bring it back to lower levels. The market is slowly adjusting to liquidity withdrawal, and expects repo rate to rise starting the second half of the next fiscal. Reverse repo can go up much before that, possibly even in the February monetary policy review.  

However, the US Fed taper will complete by the middle of 2022. That would imply the US bond yields to harden, that will push up yields in the local markets as well, irrespective of how well communicated the move it would be. But that is some time away, and the coronavirus uncertainty is not yet out of way, which may delay a recovery pushing rate decisions further down the line, bond dealers say.