INSUBCONTINENT EXCLUSIVE:
Benchmark 10-year bond yield ended at 6.45 per cent, down 2 bps on the dayMUMBAI: Indian bonds and the rupee weakened in 2021, weighed down
by sharply higher crude oil prices which pushed up inflation and raised concerns over potential interest rate increases
On Friday, however, India's benchmark 10-year bond yield eased after the Reserve Bank of India sold less than a third of the bonds on
offer and rejected all bids for two papers including the benchmark bond, signalling its unease over current high yields.The benchmark
10-year bond yield ended at 6.45 per cent, down 2 basis points (bps) on the day
For the year, however, the yield rose 55 bps, after falling 66 bps in 2020 and 82 bps in 2019."While RBI has kept rates unchanged to support
growth impulses, we envisage a series of gradual rate hikes over the next year," said Sandeep Bagla, chief executive officer at Trust Mutual
Fund."In a rising rate environment, investors are advised to take exposure to shorter duration portfolios to avoid any large mark-to-market
Traders said an overhang of debt supply amid rising crude oil prices and high retail inflation will keep upward pressure on bond yields."The
rejection of bids at the auction shows RBI's discomfort with high yields but unless they announce some concrete steps to support markets,
yields will head higher again," a senior trader at a private bank said.Traders expect the central bank to announce a simultaneous buy
long-end and sell short-end bond auction or 'operation twist' to aid investor sentiment.Oil prices edged down on Friday but were set to post
their biggest annual gains in 12 years, spurred by the global economic recovery from the COVID-19 slump and producer restraint, even as
infections surged to record highs around the world.The rupee also gained on the last day of the year, ending at 74.33 per dollar against its
It saw its biggest monthly rise against the dollar since August, gaining 1.1 per cent, but fell 1.7 per cent on the year.The rupee has
firmed in recent sessions tracking a rise in domestic shares and aided by hedging by exporters
"Amid rising global headwinds, we expect the INR to continue to trade with a downward bias in the near term," economists at Credit Suisse
wrote in a recent note."Nevertheless, we do not expect significant downside as India's domestic fundamentals remain favourable
The performance of USD/INR over the medium term could remain range-bound," they added.
