Indian bonds climb as Brexit delay Fed rate hike

The Indian government bonds strengthened on Monday, following a recovery in the domestic currency and as chances of a Fed rate hike reduced after Britain’s exit from the European Union led to global financial market volatility.

The yield on the benchmark 10-year bonds, which moves inversely to its price fell 1-1/52 basis points to 7.460 percent, yield on super-long 30-year bonds dipped 2 basis points to 7.809 percent by 07:30 GMT.

On Friday, just over 72 percent of the UK population, the highest participation rate in a country-wide poll since 1992 have participated in a historic referendum to abandon the EU project for good, highly legitimising the 51.9 percent vs 48.1 percent in favour of leaving, result. This outcome flies in the face of the high implied probabilities, based on bookie’s betting odds, of staying in, is at odds with several of the final (pre-referendum) opinion poll findings, and indeed goes against the grain of the number of self-confessed EU-sceptics who are said to have reluctantly moved towards the ‘Stay’ camp.

Although the UK physical departure from the EU will not occur for at least a few years -  article 50 of the Lisbon Treaty must first be invoked - domestically, the UK faces a very uncertain l-t economic future, and a sea-change in the political landscape. PM Cameron is to step down within three months and is likely to take along with him, Chancellor Osborne. The face of the next Conservative ‘administration’ that will be responsible for negotiating the country’s divorce and orderly exit terms from the EU will be altered, as the centre of gravity of the Tory government moves decisively further to the right.

Moreover, we foresee that the UK’s relationship with ex-EU partners will be significantly altered. Beyond that, in view of Scotland’s 62 percent vote in favour of remaining in the EU, the SNP will offer another referendum on independence to Scotland, on the basis of Scotland having been yanked out of the EU against the will of its people. We see next time around the Scottish people will likely vote in favour of secession.

Interestingly, PM Modi has announced his short-list for candidates to be next Reserve Bank of India governor of three economists and 1 banker. Urjit Patel, Rakesh Mohan, Subir Gokarn, Arundhati Bhattacharya are the shortlisted candidates. Also, Prime Minister Narendra Modi is keen to select RBI's first MPC with inputs from outgoing Governor Rajan and Rajan expected to join search committee to pick three external MPC members.

The Reserve Bank of India’s Governor Governor Raghuram told that he will not continue his second term and will return to academia after his term with the RBI ends on 4th September.

Rajan, a former chief economist of the International Monetary Fund who is on leave from University of Chicago, took charge as the twenty-third Governor of the RBI in September 2013 after the rupee sank to a record low against the U.S. dollar, as foreign investors took hefty sums off emerging markets such as India at the first indication of a reversal in easy U.S. monetary policy.

Meanwhile, the Sensex rose 0.08 percent or 21.92 points to 26,419 and Nifty-50 futures trading higher 0.73 percent or 58.65 points at 8,133.75 by 08:00 GMT.