The Government Securities market rallied on Tuesday on hopes of the Securities being included in J.P. Morgan’s ‘Government Bond Index – Emerging Markets Global Diversified (GBI-EM GD)’ soon even as it shrugged off the higher retail inflation reading for August.
The Rupee, too, strengthened by about 37 paise to the Dollar, closing at its highest level since August 5, due to FPI related inflows into equity and debt markets, weakening of the Dollar Index and likelihood of Government Securities’ inclusion in GBI-EM GD.
The Government Securities market was buoyed as Russia’s exclusion from the index is seen paving the way for Indian sovereign bonds to be included in it.
Price of the most liquid 10-year Government Security (GS), carrying 6.54 per cent coupon rate, jumped about 48 paise to close at ₹96.16 (previous close: ₹95.6775). Yield of this security slumped about seven basis points to close at 7.1077 per cent (7.1811 per cent).
Price of the newly issued 10-year Government Security (GS), carrying 7.26 per cent coupon rate, rose 40 paise to close at ₹101.27 (₹100.87). Yield of this security declined about six basis points to close at 7.0789 per cent (7.1354 per cent).
Bond prices and yields are inversely co-related and move in opposite directions.
Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said the rally in the Government Securities market was driven solely by reports of imminent inclusion of Indian Government bonds in the global bond index. If this translates into reality, foreign investment worth billions of Dollars could flow into the domestic government bond market, he added.
The GS market gained despite retail inflation reading for August coming in higher at 7 per cent against preceding month’s 6.71 per cent.
The Rupee closed at 79.1475 per Dollar on Tuesday against the previous close of 79.5225 as FPIs continued to pour money into the Indian equity and debt markets and the Dollar Index weakening below 108. Tuesday closing level is the highest since August 5th, when the Rupee closed at 79.23.
The Indian unit (INR) saw a gap opening at 79.28 per Dollar (USD) and hit an intraday high of 79.0350.
At the intraday high level, state-owned banks bought Dollars on behalf of oil marketing companies, thereby weakening the Rupee to 79.20 level. However, continuous Dollar selling by foreign banks on behalf of FPIs helped the Indian currency appreciate to close at 79.1475.