10-year G-sec bond yield softens tracking US T-bills, rupee gains slightly

Dollar index at two-month low; greenback purchases by banks on behalf of oil firms limits further rupee appreciation

The yield on the 10-year benchmark government bond fell on Tuesday tracking a fall in US Treasury yields, dealers said. However, the gains were limited on caution ahead of US inflation data scheduled to be released on Wednesday.

The benchmark 7.26 per cent, 2033 bond settled at 7.09 per cent yield, against 7.13 per cent on Monday.

“The market is looking at global cues right now, US yields have softened,” a dealer at a state-owned bank said. “The US data tomorrow will paint a clearer picture on the movement of yields from here.”

The yield on the benchmark 10-year US Treasury note fell 7 basis points to 3.97 per cent on Tuesday at the market closing hour after the comment from the US Federal reserve members suggested that the US rate-setting panel might be at the end of the monetary tightening cycle.

On Monday, Mary Daly, San Francisco Federal Reserve president, said that she expects two further rate hike announcements this year in order to address inflation. Speaking at an event hosted by the Brookings Institution, she acknowledged the potential for these expectations to fluctuate based on economic data, suggesting the possibility of a different number of rate hikes—either fewer or more.

Dealers said some traders covered short bets which further aided bonds. “The trend will continue, where traders will place short bets and cover them at auctions, this way the auction might sail through but there isn’t a real demand in the market at the moment,” a dealer at a primary dealership said. “People placed short bets earlier because they don’t see the yield (on the benchmark 10-year paper) to fall below 7.08 per cent due to supply pressure.”

According to the clearcorp repo order matching system data on CCIL, the total shorts bets on the benchmark 10-year paper amounted to Rs 15,085 crore.

Dealers speculated that mutual funds stepped up purchases of the 7.41 per cent, 2036 bond.

Additionally, the rupee strengthened against the dollar on Tuesday as the greenback weakened. The dollar index, which measures the greenback's strength against a basket of six currencies, fell to a two month low to 101.73, against 101.97 on Monday.

The rupee settled at Rs 82.37 per dollar, against Rs 82.57 on Monday.

However, the Indian unit didn’t gain further as banks bought the greenback on behalf of oil companies. “The rupee opened stronger at 82.40 and was in a range of 82.33 to 82.45 for the whole day as SBI bought dollars for oil and defence and did not allow further appreciation of the rupee,” said Anil Kumar Bhansali, Head of treasury, Finrex Treasury Advisors.