Benchmark yields ease as inflation pressures ease

The yield on 10-year US Treasuries fell almost 6 basis points to 1.46%.

Benchmark yields have fallen 8 basis points in the past few days, with more than 5 basis points falling on Monday, as investor sentiment improved after the government cut tariffs excise duty on fuel and a sharp drop in US Treasury yields. The benchmark bond yield 6.10% -2031, which traded at 6.3874% last week, has now fallen to 6.3006% at Monday’s close.

“The reduction in fuel taxes has been a great relief and will now help keep inflation problems at bay. Crude also improved and western market yields fell, comforted by the Fed’s cut, which was in line with expectations, ”said Ajay Manglunia, managing director and head of institutional fixed income at JM Financial.

The central government, on the eve of Diwali, had reduced excise duties on gasoline and diesel by Rs 5 and Rs 10, respectively. This was followed by most states, which reduced VAT on gasoline and diesel. The government statement said crude oil prices had skyrocketed globally and domestic gasoline and diesel prices had risen, exerting inflationary pressures.

Bond traders expect the central government decision to impact CPI inflation by nearly 13 to 15 basis points in December data. Meanwhile, yields on US Treasuries moderated sharply on Friday despite the stronger-than-expected October employment report. The yield on 10-year US Treasuries fell almost 6 basis points to 1.46%.

Last week, the Federal Reserve announced the start of the reduction in its bond buying program, which was expected by the market. It will cut bond purchases by $ 15 billion per month, treasury purchases cut by $ 10 billion and mortgage-backed securities by $ 5 billion. The Federal Open Market Committee has kept the key rate between 0% and 0.25%.

“At the FOMC meeting last week, the Fed was less hawkish than the market expected. He lowered QE but pushed back expectations for rate hikes. The market sold off earlier for fear of an early rise in rates, so now they’re lowering some of those expectations, ”said Pankaj Pathak, fund manager, fixed income at Quantum Asset Management.

Market participants now expect benchmark yields to hit the 6.15-25% range this week or next, as lower excise duties and benign global indices are expected to provide a some support for bonds ahead of CPI inflation data. “Markets could continue to recover and the 10-year benchmark is expected to return to 6.15-20% this week or next,” added Manglunia.

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