Bond yields continue to fall

The yields on the 10-year bond fell six basis points to 7.19 per cent on Thursday as foreign investors continued to pump in money into domestic debt, bringing about $1 billion in July alone. 
 

Positive cues on the goods and services taxes (GST) also helped sentiment in the market. Thursday’s bond level is close to its May 2013 level of 7.11 per cent, but bond dealers expect the present yields to fall further. As yields fall, prices of bonds rise. 

The US Federal Reserve decided to keep its policy rates unchanged but guided that rates could firm up in September. A pause was expected as evident from global bond rally where bond yields have turned negative in Germany, Japan and Switzerland. 
 

The Indian bonds have been rallying ever since Britain voted to get out of the European Union, falling about 30 basis points from end-June.  However, the rally could be tactical rather than fundamental, according to India Ratings (Ind-Ra).
 

“Ind-Ra believes that with continuation in momentum, the 10-year G-Sec yield can come down further without any immediate cut in the repo rate. However, the agency notes the presence of a significant tail-end-risk uptick in global bond yields as well as persisting uncertainty over who the new Reserve Bank governor could be, which could derail the ongoing positive market sentiment,” the rating agency said in a note earlier this week.