MUMBAI, Feb 10 (Reuters) – Indian government bond yields rose in early trading on Monday as investors remained cautious following the central bank’s monetary policy decision, while the local currency’s decline also weighed on sentiment.
The benchmark 10-year yield was at 6.7284% as of 10:00 a.m. IST, compared with previous close of 6.7043%.
The Indian rupee dropped to its lifetime low of 87.95 against the dollar as the risk of fresh U.S. trade tariffs spurred losses in most regional currencies.
“Bonds are facing impact from a combination of factors, including the day two impact of central bank’s monetary policy decision, constant fall in the currency and some uptick in U.S. yields,” trader with a private bank said.
The Reserve Bank of India on Friday cut its key interest rate by 25 basis points as it seeks to boost the sluggish economy.
RBI Governor Sanjay Malhotra said the central bank will continue to monitor the evolving liquidity and financial market conditions and proactively take appropriate measures to ensure orderly liquidity conditions, but did not announce measures.
Meanwhile, U.S. yields rose as strong jobs data revisions and a decline in the unemployment rate were seen as reflecting a solid labor market, reducing need for aggressive rate cuts from Federal Reserve.
Back home, investor appetite for the benchmark bond was also soured as the RBI did not include the note for its second open market bond auction under its liquidity infusion package, which is due this week.
The RBI previously bought bonds worth around 200 billion rupees ($2.28 billion), and one-fourth of that comprised of the benchmark bond.
In January, the central bank bought bonds worth 388.15 billion rupees through the secondary market.
However, bonds market participants are expecting the central bank to pause on such purchases and focus mainly on primary auctions to infuse liquidity in the system. ($1 = 87.9010 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Varun H K)
