One of World's Best Bond Rallies Snaps
File photograph of “Stop” sign that stands at the incomplete end section of new rail line. (Photographer: Riccardo Gangale/Bloomberg)

One of World's Best Bond Rallies Snaps

(Bloomberg) -- India’s rates market is dialing back on hopes of any significant monetary easing, bringing one of the world’s best bond rallies of the month to a stop. Blame the central bank chief for taking away the punch bowl.

Traders who pushed benchmark yields down to a two-year low last week counting on chunky rate cuts are taking a relook at their bets. That’s seen the 10-year yield jump ten basis points in two days. The one-year overnight indexed swap also rose eight basis points in this period.

One of World's Best Bond Rallies Snaps

Investors were caught wrong-footed when RBI Governor Shaktikanta Das said in an interview over the weekend that future rate cuts would be based on incoming data. The central bank’s change of stance to accommodative in June 6 policy has already added another 25 basis points of cuts, he said.

“Market expectations of further rate cuts have been tempered down,” said Nagaraj Kulkarni, senior Asia rates strategist at Standard Chartered Plc in Singapore. “Specifically, the market has unwound any expectations of a 50-basis point repo rate cut in the upcoming August meeting.”

The market is now pricing in just two rate cuts over next twelve months, said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership in Mumbai. But that too is unlikely to come at successive meetings, he added. The RBI’s rate-setting panel next decides on rates on Aug. 7.

©2019 Bloomberg L.P.

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