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India bond yields fall for second day on softening inflation view

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MUMBAI — Indian government bond yields fell for a second consecutive session on Thursday, spurred by hopes of easing inflation and a slower pace of interest rate hikes from the Reserve Bank of India.

The 10-year benchmark government bond yield ended at 7.2673% compared with 7.3101% on Wednesday. The yield has fallen eight basis points in the last two sessions.

“The peak of inflation is behind us,” said Debendra Kumar Dash, senior vice president, treasury, at AU Small Finance Bank, adding that going forward data is expected to ease and any major upside in bond yields was unlikely.

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India’s retail inflation data for July is due on Friday. A Reuters poll showed July inflation may temper down to 6.78% from 7.01% in June and the near eight-year high of 7.79% in April.

Elevated inflation has been a major concern for the RBI despite raising key policy rate by 140 basis points since May.

Hopes of slowing inflation ignited after U.S. consumer prices rose 8.5% in July from a year earlier, down from 9.1% in the previous month and below 8.7% expected by economists in a Reuters poll.

Still, bond market participants expect the 10-year yield to be steady around 7.25% ahead of fresh supply of central government bonds on Friday that will be followed by a long weekend.

New Delhi is due to conduct sale of bonds worth 320 billion rupees ($4.03 billion) including liquid five-year and 14-year notes on Friday. ($1 = 79.4775 Indian rupees) (Reporting by Dharamraj Lalit Dhutia Editing by Neha Arora)

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