Indian rupee, bonds weaken tracking US treasuries; more falls likely

The Indian rupee and bonds weakened on Friday as global markets were rocked overnight by a surge in U.S. treasury yields to their highest levels since the pandemic began.

The partially convertible rupee fell 1.5% on day to close at 73.4650 per dollar, posting its biggest single-day fall since March 23 last year. The Indian currency fell 1.1% on the week, having risen for the previous six weeks on the back of India’s improved economic outlook and broad dollar weakness.

Rahul Gupta, head of research-currency at Emkay Global Financial Services said the overall picture can be dire for the rupee while projecting the dollar/rupee pair to trade above 73.25 levels in the near-term, with the rupee likely to run into resistance if it strengthened to the 72.50 level.

U.S. Treasuries became a focal point for global markets after traders aggressively moved to price in earlier monetary tightening than signalled by the U.S. Federal Reserve and peers, due to a combination of improving prospects for economic recovery and concerns over rising inflation.

Almost all emerging market stock indices shed around 3-4% while bonds and currencies tumbled.

India’s benchmark 10-year bond yield rose to 6.24%, its highest since May 13. It ended trading at 6.23%, up 5 basis points on the day.

“It is a myth that RBI can draw any credible “line in the sand” with respect to the level of the 10-year bond yield,” said Suyash Choudhary, head of fixed income at IDFC Asset Management.

“Hence RBI’s efforts, including the governor’s appeal for an orderly evolution of the yield curve, should be interpreted as the central bank intervening to address the pace of change rather than control the direction of yields,” he added.

India’s central bank governor told investors on Wednesday to trust the bank to manage the government’s massive borrowing programme, after the bond market suffered a sustained sell-off following the higher than expected borrowing announcement earlier this month.

(Reporting by Swati Bhat; Editing by Simon Cameron-Moore)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor