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Indian bonds retreat from over 3-month high; election cheer short-lived

LiveMint logoLiveMint 16-05-2014 Neha Dasgupta

Mumbai: India’s government bonds fell on Friday, despite the resounding electoral victory by the Bharatiya Janata Party and its allies, as investors booked profits and looked ahead at key potential risks including the central bank’s policy review next month.

The Reserve Bank of India (RBI) is set to review policy on 3 June, and data earlier this week showed consumer inflation accelerating to a three-month high of 8.59% in April. Investors will also await more details about the new government’s fiscal policies—a key factor for credit rating agencies—and the budget expected to be unveiled by early to mid July.

The benchmark 10-year bond yield ended up 5 basis points to end at 8.83%. Yields had fallen to 8.68% earlier in the session, a level last seen on 6 February, tracking broader market gains after the election trends pointed at a massive victory for BJP. The 10-year bond yield rose 8 bps on the week, its biggest weekly rise since 4 April. Yields rose as traders pruned their holdings to make space for bond supplies and on concerns over potential revision in the borrowing plan once the new government announces the full budget, expected in July. India’s benchmark five-year overnight swaps ended up 3 basis points at 8.27% and the one-year rate was steady at 8.51%. The benchmark five-year OIS rate rose 2 basis points on the week, snapping a five-week fall. The one-year rate closed flat on the week after falling in four out of the previous five weeks.

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