10-year bond yield slips below 7% on lower inflation prints

India’s 10-year benchmark sovereign bond yield retreated below 7% on lower than expected domestic and US inflation prints, although calling the formal start to an easing cycle is rather difficult still after last week’s Mint Road assertion that domestic conditions largely would dictate its monetary policy approach.

Yield on the 10-year securities retreated to 6.98% Thursday after India’s retail inflation eased to a one-year low of 4.75% in May, as against an 11-month low of 4.83% the previous month.

A fall in government bond yields lowers borrowing costs across the economy as sovereign debt yields are the benchmarks for determining price of corporate borrowing. Bond prices and yields move inversely.

“The Indian inflation data has been printing lower than expected and the RBI has space to lower it, but looking at the prices of commodities they have chosen not to tinker with it,” said Naveen Singh, head of trading at ICICI Securities PD. “We also have the Budget coming up and foreign investors may start buying because of bond index inclusion, so we will gradually see yields shifting towards 6.90%,” he said.