10-year yield firms up for 7th day in a row
NEW DELHI: The 10-year benchmark bond yield hardened for the seventh straight session on Tuesday as the rupee tumbled to a fresh record low of 71.37.
The yield hovered around 8.02 per cent in the beginning.
It rose five basis points to close at 8 per cent on Monday, the highest closing since December 1, 2014, underscoring the impact of a widening current account deficit (CAD) on Asia’s third-biggest economy.
A widening CAD amid capital outflows is exerting upward pressure on bond yields.
“The RBI should pay attention to external sector balances as the central bank has limited stock of foreign exchange reserves and limited capacity to handle the rupee depreciation,” former Reserve Bank of India governor Y V Reddy said last week.
India’s foreign exchange reserves have fallen $26 billion since April and are close to going below the $400-billion mark.
Foreign portfolio investors have net sold Rs 43,703 crore worth of domestic bonds and equities this year, show data from the National Securities Depository.
“A material shortfall in capital inflows would have negative implications for both the balance of payments position and reserve accumulation,” Moody’s Investors Service said in a report.
The combined effect of a widening current account deficit and subsequent rupee depreciation is likely to increase borrowing costs of Indian corporates, said India Ratings and Research.
The yield hovered around 8.02 per cent in the beginning.
It rose five basis points to close at 8 per cent on Monday, the highest closing since December 1, 2014, underscoring the impact of a widening current account deficit (CAD) on Asia’s third-biggest economy.
A widening CAD amid capital outflows is exerting upward pressure on bond yields.
“The RBI should pay attention to external sector balances as the central bank has limited stock of foreign exchange reserves and limited capacity to handle the rupee depreciation,” former Reserve Bank of India governor Y V Reddy said last week.
India’s foreign exchange reserves have fallen $26 billion since April and are close to going below the $400-billion mark.
Foreign portfolio investors have net sold Rs 43,703 crore worth of domestic bonds and equities this year, show data from the National Securities Depository.
“A material shortfall in capital inflows would have negative implications for both the balance of payments position and reserve accumulation,” Moody’s Investors Service said in a report.
The combined effect of a widening current account deficit and subsequent rupee depreciation is likely to increase borrowing costs of Indian corporates, said India Ratings and Research.