Bond yields rose on Thursday just after the Federal Open Market Committee (FOMC) indicated tapering its bond-getting programme as the economy had made progress towards objectives of low unemployment and steady inflation. The yields on 5.63%-2026 and 6.64%-2035 bonds ended greater ahead of weekly auction, dealers stated.
The new 10-year benchmark 6.10%-2031 bonds ended at 6.1975%, which is practically 1 basis point greater than Wednesday’s close. The 5.63%-2026 and 6.64%-2035 bonds ended at 5.7210% and 6.8292% yield, respectively.
The Federal Reserve on Wednesday kept the benchmark policy price unchanged at zero to .25% and stated there would be no adjust in bond-getting programme of $120 billion per month, which consists of $80 billion of treasuries and $40 billion of mortgage securities. The pace of bond getting will continue till “substantial further progress” been made on employment and inflation.
“The economy has made progress towards these goals, and the committee will continue to assess the programme in coming meetings,” the FOMC stated in a statement. The statement by the FOMC indicated that the inflation was operating ahead of the Fed’s annual target of 2%. However, Jerome Powell warned that the effect of the Delta variant could not be neglected.
“The yields have risen mainly because the Fed has indicated that it will start tapering by the end of the year, so basically they will consider it in next few meetings. The sentiments of traders are largely neutral to slightly negative, and that is why there is mild correction in bond prices,” stated Mahendra Kumar Jajoo, CIO, fixed revenue, Mirae Asset Investment Managers (India).
Meanwhile, the yields on most active and traded 5-year and 14-year bonds rose on provide concern due to its presence in the Reserve Bank of India’s weekly bond auction scheduled for Friday. One dealer with a private bank stated demand in the market place was low due to provide issues, most traders have lightened their position ahead of auction. “The demand is weak and supply is constant, that is why yields on government securities are rising,” a dealer with a massive private bank stated.
On Friday, the central bank will sell bonds worth Rs 32,000 crore, of which Rs 11,000 crore will be of 5.63%-2026 and Rs 10,000 crore will be of 6.64%-2035 bonds. Similarly, the RBI will also sell bonds worth Rs 4,000 crore and Rs 7,000 crore in the segments of GoI FRB 2033 and 6.67%-2050, respectively.