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Government bond yields fell on Monday to the lowest since July 2013 as a drop in US wages spurred speculation that its central bank would delay an increase in interest rates.
Average hourly earnings of US workers fell 0.2 per cent in December, the biggest dip since 2006. Minutes of the US Federal Reserve’s December meeting, issued last week, showed it was unlikely to raise interest rates before late April.
The yield on the 10-year benchmark bond fell to 7.81 per cent from the previous close of 7.84 per cent, the lowest level since July 15, 2013, where it had ended at 7.56 per cent. Hope of a delayed rate cut in the US also helped the rupee, which closed at 62.14 against the dollar from the previous one of 62.33. It was a climb for a fourth day, touching 62.1 in intra-day trade, the strongest level since December 10, when it had ended at 62.02.
After market hours, the retail inflation data for last month was released by the government. Consumer Price Index inflation rose an annual five per cent in December, compared with one of 4.38 per cent, year-on-year, in November, the latter the slowest pace from January 2012. Even so, the December rise was below market expectation.
“The market is anticipating that rate cuts might happen sooner. As a result, the bond market might rally a little bit more tomorrow,” said N S Venkatesh, executive director and head of treasury at IDBI Bank.
In the foreign institutional investors’ auction for government debt on Monday, the total market demand was Rs 2,678 crore, compared with the Rs 1,285 crore available. There were 52 bidders.
“Inflation surprised on the lower side. We anticipate a rate cut in the next Reserve Bank policy review. In the run-up, the yield on the 10-year bond might fall to 7.75 per cent and it could stabilise around that level,” said Prasanna Patankar, deputy managing director at STCI Primary Dealer.
