 "Rupee, bonds market, funds")
The rupee and government bonds gained on Monday after lower-than-expected headline inflation for December, said market participants. The benchmark 10-year bond yield dropped to a four-month low on Monday.
The fall in US Treasury yields and foreign portfolio investor (FPI) inflows further aided rupee and bonds. The US market was shut on Monday due to Martin Luther King Jr. Day.
The yield on the benchmark 10-year government bond settled 4 basis points (bps) lower at 7.14 per cent, whereas the rupee settled at 82.89 per US Dollar, against 82.92 per Dollar on Friday. The local currency touched the intra-day high of 82.78.
“The rupee traded positively as the dollar index remained stable around $102. The Indian capital markets, with Nifty crossing 22,000 and Sensex reaching 73,000, experienced fund inflows that contributed to the ongoing rise in the rupee since it breached 83.10 last week," said Jateen Trivedi, VP Research Analyst, LKP Securities.
In January, the rupee has appreciated by 0.4 per cent so far, whereas, the benchmark yield has softened by 3 bps. The 14-year government bond gained the most on Monday as foreign banks stepped up purchases of the specific security on the behalf of foreign portfolio investors (FPIs), said market participants. Meanwhile, state-owned banks were speculated to be the net sellers during the day.
“The December CPI was lower than market expectations. There was buying from the FPIs in the both overnight interest swap market and government bond market,” said a dealer from a state-owned bank. “The public sector banks were the natural sellers today (Monday),” he added.
The domestic headline inflation in December was at 6.69 per cent, against the expectations of 6.9%, said dealers.
“The US market rallied even though their CPI was on the negative side, and then our CPI was positive. Together, these two factors augmented the expectations of rate cuts by the US Federal Reserve in March,” a dealer at another state-owned bank said.
The 5-year OIS rate fell by 6 bps to settle at 6.21 per cent, whereas the 1-year OIS rate fell by 4 bps on Monday. Market participants said that the five-year OIS rate did not fall further because traders paid fixed rates in the 5-year OIS segment and bought 10-year government bond when the spread between the 5-year OIS rate and the yield 10-year benchmark government bond touched 100 basis points.
