India Bonds Drop as U.S. Signals Rate Increase, Cuts StimulusShikhar Balwani
India’s 10-year bonds dropped on concern demand for high-yield assets may weaken after the Federal Reserve outlined the timing of a possible interest-rate increase and trimmed its monetary stimulus.
The Federal Open Market Committee cut its monthly debt purchases by $10 billion for the third straight meeting yesterday, paring the stimulus to $55 billion, and said the program may end in the second half of the year. The first increase in U.S. interest rates could be around six months after that, Fed Chair Janet Yellen said. Yields on two-year Treasury notes rose as much as 10 basis points yesterday.
“We expect weaker currencies and stock markets, and higher rates in Asia today,” Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong, wrote in a research note. “Emerging-market sentiment is likely to be much weaker” after the “surprisingly hawkish” FOMC outcome, he added.
The yield on the 8.83 percent Indian bonds due November 2023 climbed four basis points, or 0.04 percentage point, to 8.82 percent in Mumbai, the highest closing level since March 5, according to the central bank’s trading system.
The Reserve Bank of India will take steps to inject additional cash into the banking system, it said in a statement today. Ten-year yields pared some of their gains after the announcement.
The Fed discarded a jobless-rate threshold for considering when to increase borrowing costs and said it will look at a wider range of data. The monetary authority said in a statement that it will slow debt purchases in “further measured steps.”
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose two basis points to 8.65 percent, the first increase this week, data compiled by Bloomberg show.