Bond yields rose sharply tracking rising yields in US in the last couple of days. However, experts believe tomorrow there would be some corrections due to positive domestic factors on the retail inflation and index of industrial production (IIP) front.
The yield on the 10-year benchmark bond rose by 6 basis points on Tuesday to end at 7.95% compared with previous close of 7.89%. Earlier this month on Thursday the yield on the 10-year bond had climbed up to 7.99%.
“There was reversal of yesterday's rally in bonds and the sentiments also got impacted due to rise in yields in US. There is some strong support for the 10-year bond yield at 8%. In the near term there could be volatility in the bond market due to international factors,” said R Sivakumar, head of fixed income at Axis Mutual Funds.
The yield on the 10-year US Treasury had risen from 2.15% on Friday to 2.30% and in the Indian bond market foreign investors have been selling debt.
Today after market hours the Consumer Price Index (CPI) inflation and IIP data was released. Retail inflation eased to a four-month low of 4.87% in April, while the annual industrial output growth slowed to 2.1 percent in March.
“The data points are favourable for a rate cut. Indian bonds could recover unless there is some huge movement happening in US bond market. The yields could fall by 5 bps compared with today's close,” said Khajuria, president (treasury), Federal Bank.
Though Foreign Institutional Investors (FIIs) have emerged as net sellers in domestic debt in May, experts believe in the medium term things could change. “In the medium term though, barring any external shocks, inflows should eventually return as rupee bonds still offer promise of good total return for overseas investors, compared to other currencies,” said Ananth Narayan, regional head- financial markets, South Asia, Standard Chartered Bank.
