Indian bond market unaffected by US downgrading
The downgrade by the US has had no significant effect on the Indian bond market. According to the opinions of several experts, the path that bond yields will take can be predicted based on domestic factors such as the trend of inflation and the position taken by the RBI.
MUMBAI: The downgrading of the US long-term foreign-currency issuer default rating by Fitch Ratings on Tuesday from AAA to AA+ with a “stable” outlook is not expected to have a substantial impact on the Indian bond market.
According to experts, domestic factors including inflation trends and the RBI’s stance would affect the trajectory of bond yields. The benchmark 10-year bond yield has already increased during the past two months, following a rise in US Treasury yields, the price of crude oil, and forecasts of an increase in domestic inflation.
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“Participants in the bond market are already aware of the reasons given by Fitch Ratings for the downgrading, and those worries have already been taken into account. Recent events are not surprising. According to the chief financial officer of a public sector bank, the RBI’s monetary policy signals are now being awaited by the bond marketing. There is “going forward, upward pressure on yields and the inflation numbers will influence the bond yields,” he continued. He forecasts that the 10-year yield will be between 7.10 and 7.25% this month.
The benchmark 2033 bond yield of 7.26 percent opened on Wednesday at 7.175%, slightly higher than the day before’s close of 7.16%. Domestic 10-year bond yield increased by 6 basis points in July, moving from 6.98 to 7.12% in June to a range of 7.06 to 7.18%.
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