Bonds rally as US Federal Reserve says no plans for further rate hike

The yield on the benchmark 10-year government bond fell by three basis points to settle at 7.16 per cent, against 7.19 per cent on Tuesday

Government bonds strengthened on Thursday as traders covered short positions following the US Federal Reserve Committee’s announcement of no further rate hikes.

However, the US rate-setting panel indicated that interest rates would remain elevated for an extended period, potentially delaying expectations of rate cuts.

The yield on the benchmark 10-year government bond fell by three basis points to settle at 7.16 per cent, against the 7.19 per cent on Tuesday.

Money markets were shut on Wednesday on account of Maharashtra Day.

“The market was relieved that at least there won’t be any hike; that is why we could see some rally (price) today,” said a dealer at a state-owned bank.

 

“Primary dealers were covering their short bets. On the selling side, it was public sector banks, and private banks had bought a lot in the last few sessions, so they were on the selling side too,” he added.

Price and yield move inversely.

The Indian rupee held steady within a tight band, fluctuating between 83.41 and 83.49 against the US dollar throughout the day.

This stability was influenced by foreign portfolio investors purchasing dollars, countered by the Reserve Bank of India’s intervention through dollar sales near the upper limit of 83.49 per dollar.

Foreign portfolio investors have been consistently pulling out from both debt and equity markets over the past 15 days, amounting to a net total of $2.3 billion in sales.

The local unit settled at 83.47 per dollar on Thursday, against 83.44 per dollar on Tuesday.

The Dollar Index and the US treasury yields remained steady during the day. The US Federal Reserve kept the federal fund target range unchanged at 5.25 per cent to 5.50 per cent for the sixth consecutive policy meeting.

“The Dollar Index exhibited weakness following Jerome Powell’s speech late yesterday evening but maintained key levels around 105.25. 

The upcoming non-farm payroll and unemployment data, which will be released on Friday, remains crucial in determining the further trend in currencies,” said Jateen Trivedi, vice-president, research analyst - commodity and currency, LKP Securities.