Indian 10-year bond yields inch away from 6 pct forecast, likely to fall further on stronger RBI easing consensus

The Indian 10-year bond yields approached to break the 6 percent mark for the first time since 2009. Also, on rising speculation that the Reserve Bank of India (RBI) will lower its repo rate by 25 basis points to 6 percent in December drove investors towards safe-haven buying.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell nearly 3 basis points to 6.21 percent, the yield on long-term 30-year note dipped 1-1/2 basis points to 6.66 percent and the yield on short-term 2-year note slid 2 basis points to 5.97 percent by 07:00 GMT.

Economic growth in India during the second quarter of the fiscal year 2017 rose, albeit lower than market expectations, following an upbeat performance in the service sector, the country’s major contributor to gross domestic product. Also, higher consumption demand added to the rise.

The economic activities which registered growth of over 7.0 percent in Q2 of 2016-17 over Q2 of 2015-16 are ‘Public administration, defence & other services’, 'financial, insurance, real estate and professional services', ‘manufacturing’ and ‘trade, hotels and transport & communication and services related to broadcasting’.

Moreover, the recent demonetisation drive of India government could be disinflationary in the near term and therefore strengthen the case for the Reserve Bank of India to ease in December.

The RBI next bi-monthly two-day monetary policy meeting is scheduled to be held on December 6-7. It is widely expected that the current trend of lower inflation expectations will space for the Governor Urjit Patel for further monetary easing.

Lastly, the Indian bonds have been closely following developments in oil markets because of their impact on inflation expectations, as India imports 80 percent of its crude oil requirements.

Crude oil prices rallied after OPEC agreed to output cuts in OPEC ministerial gathering at Vienna yesterday. The International benchmark Brent futures rose 1.10 percent to $52.41 and West Texas Intermediate (WTI) jumped 1.05 percent to $49.96.

Meanwhile, the Sensex rose 0.04 percent or 11.26 points to 26,664.07, while Nifty-50 futures traded 0.07 percent lower or 5.40 points at 8,248.50 by 07:30 GMT.