Indian bonds rise modestly ahead of December CPI data, Trump’s news conference

The Indian government bonds posted moderate gains Wednesday ahead of the December consumer inflation data, scheduled to be released Thursday. Also, United States President-elect Donald Trump’s news conference later in the day will provide further clarity on market movements. This would be the first public appearance after winning the 2016 Presidential elections on November 8.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell over 1 basis point to 6.38 percent, the yield on long-term 15-year note also plunged 2 basis points to 7.04 percent and the yield on short-term 2-year note slid over 1/2 basis point to 6.32 percent by 08:30 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.

The 2017-18 Union Budget, expected to be unveiled by February 1 is likely to incorporate a slash in the income tax bracket as well, allowing consumers to combat the negative effects of demonetization. The policy implementation is expected to boost consumer spending, allowing door for some recovery in inflation expectations.

Meanwhile, the benchmark 30-share Sensex traded up 0.82 percent at 27,119.51 while the 50-share Nifty futures traded 1.08 percent or 89.70 points higher at 8,377.80 by 08:35 GMT.