The Indian government bonds plunged Friday following weakness in the U.S. Treasuries. Also, investors drove out from the safe-haven buying after rupee depreciated against the U.S. dollar on expectations that the U.S. president-elect Donald Trump’s policies may boost inflation.
The yield on the benchmark 10-year bonds, which moves inversely to its price, rose 2-1/2 basis points to 6.685 percent, the yield on 5-year note jumped 30 basis points to 6.552 percent and the yield on 3-year note climbed 1/2 basis point to 6.394 percent by 07:00 GMT.
The Indian bonds have been closely following developments in the U.S. debt market. The United States benchmark 10-year Treasury yield rose 8 basis points to the highest in 2016 of 2.138 percent on expectations that U.S. President-elect Donald Trump's policies, such as fiscal expansion and protectionism on international trade, could support growth and inflation.
On Tuesday night, the Indian central government, led by Prime Minister Narendra Modi abolished the circulation of INR500 and INR1,000 notes in order to curb black money. Further, Modi suggested the Indian citizens to exchange the respective notes from any commercial banks or nearby post office from November 10 to December 30.
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, said the Citi Research, Reuters reported.
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.
Meanwhile, the rupee was last trading at 67.06 to a dollar against 66.63 at the previous close, the Sensex fell 1.69 percent or 449.13 points to 27,068.55 and Nifty-50 futures traded 2.18 percent lower or 188.25 points at 8,353 by 07:30 GMT.
