Indian bond yields sag on broadening RBI easing consensus, December CPI in focus

The Indian government bond yields sagged Tuesday on rising speculation that the Reserve Bank of India will lower its repo rate by 25 basis points to 6 percent in its next two-day bi-monthly monetary policy meeting. Also, investors are eyeing December consumer inflation due to be released on January 12.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 1-1/2 basis points to 6.38 percent, the yield on long-term 19-year note also dipped 1/2 basis point to 7.00 percent and the yield on short-term 2-year note slid nearly 1 basis point to 6.32 percent by 09:00 GMT.

It is worth noting that the benchmark 10-year yields fell nearly 160 basis points to 6.18 percent in 2016 as subdued inflation and negative demonetisation raised expectations for the RBI rate cut. We at FxWirePro expect that this is also likely to continue even in 2017.

In addition, the country’s inflation is anticipated to have eased further in coming months due to failure of demonetisation. This masterstroke brought in a pool of electronic transactions that deprived many of hand-to-hand cash exchanges, thus leaving the citizens in a wide array of lower spends overall.

The lower spread of cash transactions, coupled with a maximum limit on ATM withdrawals has pressurized the prices of many retail commodities, including luxuries and real estate prices as well.

Meanwhile, the Sensex traded up 0.59 percent at 26,883.40 while Nifty-50 futures traded 0.53 percent or 44.15 points higher at 8,279.40 by 09:00 GMT.