By Bhakti Tambe
MUMBAI, Dec 15 (Reuters) – Indian government bond yields fell sharply on Friday, with the benchmark yield posting its biggest weekly decline in over 7 months after the U.S. Federal Reserve struck a dovish tone at its policy meeting earlier this week.
The benchmark 10-year bond yield ended at 7.1624%, after closing the previous session at 7.1969%. The yield ended over 10 basis points (bps) lower for the week, its biggest decline since the week ended May 5.
“There’s euphoria in the market after a dovish Fed surprised the market and our yields are moving in tandem with the slump in U.S. yields,” said Dwijendra Srivastava, chief investment officer – debt, at Sundaram Mutual Fund.
The overall optimism also led to strong demand at Friday’s bond auction, dragging yields down further, and as the Reserve Bank of India’s support in terms of the variable rate repo auction eased fears of the central bank sucking out liquidity, he added.
New Delhi raised 330 billion rupees ($3.98 billion) through bonds earlier in the day and cut-offs were lower than expected due to strong bid interest.
U.S. bond yields plunged to multi-month lows as investors braced for looming rate cuts after the Fed adopted a dovish stance amid central bank projections for lower interest rates next year.
The rate futures market on Thursday priced in a 78% chance of a U.S. rate cut in March, according to LSEG’s FedWatch. The market has also factored in about 140 bps of easing by the end of next year, while Fed officials have estimated 75 bps of rate cuts in 2024.
Meanwhile, oil prices rose on Friday, on track to notch their first weekly gain in two months, after benefiting from a bullish forecast by the International Energy Agency on oil demand for next year and a weaker dollar.
The move in oil prices is crucial for net importers like India. ($1 = 82.9849 Indian rupees) (Reporting by Bhakti Tambe; Editing by Sonia Cheema)