October unease
The yield on the old 10-year benchmark G-sec (7.10% GS 2034) opened October at 6.73% and closed at 6.84%, up 9 basis points (bps) from its September close of 6.75% and above Crisil’s forecast range of 6.68-6.78%. The month also saw the introduction of 6.79% GS 2034 as the new 10-year benchmark.
The bond market opened the first week of the month on a positive note, tracking a decline in US Treasury (UST) yields. Firm demand at the state bond auction aided gilt prices to some extent. However, during the week, prices declined owing to a rise in crude oil prices amid heightened tensions in the Middle East. By the end of the week, prices further slumped because of foreign portfolio investor (FPI) sales amid escalating geopolitical tensions. With this, the old 10-year benchmark paper 7.10% GS 2034 closed the week at 6.83% and the new one at 6.79%.
At the start of the second week, domestic bonds traded with a negative bias, tracking a surge in UST yields. However, as the week progressed, the Reserve Bank of India’s (RBI) buyback announcement and hopes of inclusion of Indian bonds in the FTSE Russell Index aided gilt prices to some extent. Prices rose as the RBI’s Monetary Policy Committee (MPC) unanimously changed its policy stance to neutral. Also, traders remained cautious ahead of the US inflation data release. The rupee hit a record low of 84.07 against the dollar, due to which the market sentiment remained dull as FPIs sold. A rise in crude oil prices and mounting geopolitical tensions in the Middle East also weighed. The old 10-year benchmark yield closed at 6.79% and the new at 6.74%.
The third week started off on a positive note, tracking the buyback announcement. However, during the week, a higher-than-expected consumer price index (CPI)-based inflation print for September weighed on bond prices. Additionally, a surge in UST yields turned market sentiment a tad bearish. By the end of the week, prices fell further following the RBI governor’s remarks that a policy rate cut at the present juncture is premature and risky. The old 10-year benchmark yield closed at 6.81% and the new at 6.77%.
In the fourth week, a decline in UST yields and lower-than-expected state borrowing aided bond prices in the beginning. For most of the week, bonds traded in a narrow price range amid a lack of firm domestic and offshore cues. However, prices declined later because of a rise in overnight index swap (OIS) rates and a disappointing cut-off at the weekly G-sec auction. The 10-year benchmark paper closed the month at 6.84% and the new one at 6.81%.