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Fed rate cut impact: Govt bond yields at lowest since Feb 2022, rupee at two-month high
Fed rate cut impact: Govt bond yields at lowest since Feb 2022, rupee at two-month high
新闻详情:最后更新时间: 2024-09-19 13:05:17
Sovereign bond yields closed at a two-and-a-half year low on Thursday, while the rupee strengthened to a two-month high, as the Fed’s first rate cut in four years, coupled with its reassuring commentary on the US economy brightened the outlook on emerging market assets. Yield on the 10-year benchmark Indian government bond settled at 6.76% on Thursday, 2 basis points lower than 6.78% on Tuesday. Thursday’s level marks the lowest closing for the 10-year benchmark government bond yield since February 25, 2022, LSEG data showed. Bond prices and yields move inversely. A fall in government bond yields brings down borrowing costs across the economy as sovereign debt instruments are the benchmarks used for pricing corporate debt. Meanwhile, the rupee ended the day at 83.68/$1, its strongest closing level versus the US currency since July 23, the LSEG data showed. The currency had closed at 83.75/$1 on Tuesday. Bond and currency markets were closed on Wednesday. Late Wednesday, the US Federal Open Market Committee announced a 50-basis-point reduction in interest rates, commencing on a monetary easing cycle for the first time since the COVID crisis broke out in 2020. Wednesday’s rate cut, which was on the higher side of market expectations, formally reversed an aggressive monetary tightening cycle that the Fed embarked on in March 2022. Lower US interest rates increase the appeal of relatively higher-yielding assets in emerging markets like India. Moreover, with Fed Chair Jerome Powell saying that he did not see elevated likelihood of an economic downturn in the US, appetite for riskier emerging market assets could strengthen further going ahead. 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The Fed rate cut now provides an additional push for lower Indian bond yields because lower rates in the US makes EM assets more attractive,” said Naveen Singh, head of trading at ICICI Securities Primary Dealership. While the Reserve Bank of India has steadfastly maintained that its interest rate actions are driven by domestic considerations and not actions by other central banks, the global turn towards lower rates provides room for the Indian central bank to adopt a softer policy tone in the next couple of months if food inflation pressures subside, traders said. Singh said yield on the 10-year bond could test the 6.60-6.65% mark going ahead, depending on how much the food inflation outlook shapes domestic rate cut expectations. Currency market analysts said that the RBI, which has ensured low volatility in the exchange rate through regular interventions for many months now, had permitted some appreciation in the local unit on Thursday. “The gain in the rupee was due to RBI not absorbing the inflows in equity and debt on Thursday. RBI may give some relief and let the rupee stabilise around 83.60/70/$1 to adjust for the (wider) interest rate differential with the US,” said Dilip Parmar, research analyst, HDFC Securities. So far in September, foreign portfolio investors have net purchased $3.7 billion worth of Indian stocks and around $2 billion worth of fully accessible domestic government bonds, depository data showed. (You can now subscribe to our ETMarkets WhatsApp channel )