Bond prices fall further as traders await RBI policy, rupee closes lower against US dollar

The rupee closed at 64.07, down 0.01% from its previous close of 64.06. Photo: Bloomberg

Mumbai: India’s 10-year bond prices declined further following a surge in US yields after strong job data increased prospects of a rate hike by the US Federal Reserve next month.

The 10-year bond yield ended at 7.605% from its previous close of 7.562%. Bond yields and prices move in opposite directions.

On Friday, US Labor Department data showed non-farm payrolls rose 200,000 in January, exceeding the median estimate of economists for a 180,000 increase as the jobless rate held at a near 17-year low of 4.1%. The next US Fed policy will start on 21 March.

Traders will also keep an eye on the Reserve Bank of India’s (RBI) interest rate decision on 7 February. Analysts expect the RBI to keep interest rates on hold on expectations that inflation may accelerate further due to higher crude oil prices and a proposed hike in minimum support prices for farmers.

Of the 15 economists surveyed by Mint, 14 expect the central bank to keep repo rate—the rate at which the central bank infuses liquidity in the banking system—unchanged at 6%. Only one expects a rate hike of 25 basis points.

Bond yield are already under pressure after the government breached its fiscal deficit target for fiscal year 2017 to 3.5% from earlier target of 3.2% and revised upward its deficit target for next fiscal year to 3.3% from 3% earlier. Analyst sees that after missing fiscal deficit target it is a clear indication accommodative or neutral policy stance adopted by the RBI may change in near future.

The rupee closed at 64.07, down 0.01% from its previous close of 64.06. The home currency opened at 64.22 and touched a low of 64.23 a dollar.

The benchmark Sensex index fell 0.88% or 309.59 points to 34,757.16. So far this year, Sensex has risen 3.5%.

So far this year, the rupee has weakened 0.3%, while foreign investors bought $2.22 billion in equities and $1.67 billion in debt market.