Indian bonds plunge after RBI Governor Rajan declines second term

The Indian government bonds plunged on Monday after Reserve Bank of India’s Governor Governor Raghuram told the RBI staff that he will return to academia after his term with the RBI ends on 4th September, denting investors’ sentiments.

The yield on the benchmark 10-year bonds, which moves inversely to its price rose more than 2 basis points to 7.525 percent, yield on super-long 30-year bonds jumped more than 1 basis point to 7.872 percent, yield on 11-year bonds climbed more than 6 basis points to 7.840 percent and the short-term 3-year note yield bounded nearly 2 basis points to 7.213 percent by 07:00 GMT.

According to Reuters, 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.

The government will shortly announce a successor to Rajan, Finance Minister Arun Jaitley said on Saturday. The focus will soon shift to who will succeed Rajan as the central bank’s next chief.

In addition, 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. Today, crude oil prices jumped more than 1 percent due to weaker US dollar and easing fears of a UK exit from the European Union. The International benchmark Brent futures rose 1.36 percent to $49.82 and West Texas Intermediate (WTI) climbed 1.08 percent to $48.50 by 06:50 GMT.

However, the south-west monsoon which hit the Kerala coast on 8 June, a week later than expected, is expected to gradually bring down food inflation. The monsoon is critical to the Kharif crop as over half of India’s farmland lacks assured irrigation and the country receives 80 percent of its annual rainfall during the four months starting in June.

Meanwhile, the Sensex rose 0.59 percent or 157.84 points to 26,783.75 and Nifty-50 futures trading up 0.93 percent or 76.10 points at 8,239 by 07:30 GMT.