G-Sec yields spike, rupee weakens on higher-than-expected US inflation

Yields of government securities (G-Secs) spiked, tracking US Treasury yields, which rose due to higher-than-expected inflation. The rupee weakened against the dollar, which gained against most currencies due to the possibility that rate cuts may be delayed by the US Fed to rein-in inflation.

• Also read: Rupee falls 13 paise to close at 83.44 against US dollar

Yield of the benchmark 10-year G-Sec (7.18 per cent GS2033) jumped about 7 basis points to close at 7.1794 per cent (previous close: 7.1116 per cent). Price of this paper declined about 46 paise to close at ₹99.99 (₹100.4475).

Bond yields and prices are inversely co-related and move in opposite directions.

Yield of the newly issued 10-year G-Sec (7.10 per cent GS2034) too rose about 6 basis points to close at 7.1451 per cent (previous close: 7.0807 per cent). Price of this paper fell about 46 paise to close at ₹99.68 (₹100.135).

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “With the US inflation reading coming in higher than expected, there could be a delay in rate cuts by the US Fed. Oil prices could turn volatile if tensions in the Middle-East (possibility of Iran attacking Israel) escalate. These factors will have a bearing on the Indian markets.”

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 per cent in March (against expected 0.30 per cent) on a seasonally adjusted basis, the same increase as in February, per the US Bureau of Labour Statistics (BLS). Over the last 12 months, the all items index increased 3.5 per cent before seasonal adjustment. The index for shelter rose in March, as did the index for gasoline.

“Markets have slashed hopes of an easing (by the US Fed) this year, while eyeing just 45 basis points/ bps (less than two rate cuts this year as against the dot-plot of 75 bps),” according to Nuvama Wealth Management.

Rupee weakens

Meanwhile, the rupee weakened about 23 paise on Friday as the US dollar strengthened against major currencies on delays in rate cuts by the US Fed and sell-off in the domestic equity market.

The Indian unit closed at 83.4125 against the dollar against previous close of 83.1850. Dollar sales by state-owned banks is believed to have prevented further depreciation of the rupee.

Riya Singh, Research Analyst, Commodities and Currency Desk, Emkay Global, observed that with the market sentiment shifting away from expectations of a June rate cut, the greenback is poised to maintain its strength.

“The robust performance of the DXY index and rising US treasury yields continue to exert pressure on the Indian Rupee (INR), which ended the week on a depreciative note against the strong greenback. Expectations of delayed FED rate cuts and elevated crude oil prices further contribute to the rupee’s challenges,” Singh said.

However, intervention by RBI and selling by exporters are expected to limit INR depreciation to levels of around 83.50 to 83.65. Looking ahead, the rupee is anticipated to oscillate within the range of 83.20 to 83.55 in the coming week, subject to ongoing market dynamics and central bank actions.

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