10-year bond yield closes at 15-month high ahead of RBI policy meet

Mumbai: The 10-year bond yield on Monday closed at a fresh fifteen-month high ahead of the Reserve Bank of India’s (RBI) bi-monthly policy decision this week.

Most of the analysts polled by Mint expect the central bank to keep interest rates on hold for a prolonged period starting with its policy meeting on concerns of rising inflation.

All 15 economists surveyed expect the central bank’s monetary policy committee (MPC) to keep the key repo rate—the rate at which it infuses liquidity in the banking system—unchanged at 6% when it announces its decision on Wednesday.

Also, analysts expect that the government may miss fiscal deficit target for this year and it may have to sell more bonds to finance this.

The government missed its fiscal deficit target for the current fiscal year due to sharp cuts in goods and services tax rates and higher crude oil prices. According to government data, fiscal deficit already hit 96.1% for full year target by the end of October.

In intraday bond yield hit a high of 7.107%. The 10-year bond yield closed at 7.083% — a level last seen on 6 September 2016, compared to its previous close of 7.059%. Bond yields and prices move in opposite directions.

According to a Bloomberg report, IndusInd Bank Ltd projects the yield will climb to 7.10% by the end of December, while Emkay Global Financial Services Ltd predicts it may rise as high as 7.50 to 7.80% in the next six-to-12 months.

Rupee strengthened against the US dollar. The home currency ended at 64.38 a dollar, up 0.14% from its Thursday’s close of 64.46. The rupee opened at 64.57 a dollar and touched a high of 64.29. Markets were closed on Friday due to Eid-al-Fitr.

The benchmark Sensex rose 0.11%, or 36.78 points, to closed at 32,869.72. So far this year, it has gained 26.26%.

So far this year, the rupee has gained 5.4%, while foreign institutional investors have bought $8.85 billion and $22.62 billion in equity and debt, respectively.