‘Possibility of a sharp start to tightening US policy’
Indian bond prices fell while the rupee weakened on Tuesday, as investors bet that the US Federal Reserve will remain on course to tighten policy in mid-2022 after announcing a second term for its chairman Jerome Powell. The rupee was trading at 74.51/52 per dollar at 0600 GMT, after touching 74.5725, its weakest session since November 11. On Monday it closed at 74.3950.
The benchmark 10-year bond yield rose 3 basis points to 6.38%.
The dollar was close to a four-and-a-half-year high against the yen, while stocks and currencies in emerging markets in Asia were mostly down, following Mr. Powell’s reelection to a second term, as the Fed chief strengthened bets on a potentially sharp start. done to tighten the policy in America
“The key theme in the coming quarters will be policy normalization and there will arguably be more clarity under Powell,” economists at DBS wrote in a note. “That has accelerated exponentially since June’s FOMC meeting and closed the taper in November,” he said.
For domestic bonds, volatility in global crude oil prices will also be significant due to its impact on inflation. Traders expect bond yields to remain broadly in the range of 6.3-6.4% till RBI’s monetary policy review in early December.
Oil fell on Tuesday, reversing gains from the previous session, on rising discussions US, Japan and India will release crude oil reserves to control prices.
“Oil prices are cushioning the impact of Powell’s reappointment, but the oil boom could easily push the 10-year yield from the current 6.3%-6.4% range,” said a senior trader at a private bank.
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