On Friday, as geopolitical tensions in West Asia increased, the rupee fell to a new intraday low of 83.57 against the US dollar. However, it later recovered as Iran downplayed the significance of an Israeli missile attack.
After closing at 83.54 on Thursday, the Indian rupee ended the day at 83.47 per dollar.
The yield on the benchmark 10-year government bond increased to 7.23 percent from 7.19 percent on Thursday, a change of 4 basis points (bps).
Calls for moderation by world leaders calmed investor concerns, and the currency recovered following a sluggish opening. Rupee volatility within the range is anticipated to continue while the Indian elections are taking place. The range for the rupee is expected to be between 83.20 and 83.70 “VP research analyst for commodities and currencies at LKP Securities, Jateen Trivedi, stated.
In the non-deliverable forwards (NDF) market, the unit dropped to a new low of Rs 83.70 against the US currency. The Reserve Bank of India’s (RBI) intervention, according to market participants, caused the rupee to open at 83.56 against the US dollar in the over-the-counter (OTC) market.
The NDF saw the Indian rupee drop to a record low, but the RBI intervened in both the NDF and local over-the-counter markets to keep it close to Rs 83.50 per dollar. The RBI sold about $2 billion on Thursday and made sure the dollars it purchased were put to use during the rainy season, according to Anil Kumar Bhansali, executive director of Finrex Treasury Advisors LLP and head of treasury.
In an effort to reduce risk, traders in the government bond market closed their holdings before the weekend, which helped to raise yields. The soon-to-be benchmark 10-year bond saw a sharp decrease in trading. Prior to Thursday, the bond was the second most traded; however, on Friday, it fell to the fifth position.
The sole explanation for the decline in sentiment is the increase in US yields, but there’s no particular cause. Foreign portfolio investors, or FPIs, have begun to sell off a little bit as the yields have increased. Due to the geopolitical risk that is prevailing in the world right now, traders will not want to accept the two-day risk because it is the weekend, according to Vijay Sharma, senior executive vice-president of PNB Gilts.
Because the majority of the new 10-year bond would have already been purchased by investors when there aren’t many outstanding issues, the trade volume of the bond decreased. Additionally, when facing a loss, investors typically don’t sell, he said.
Since it was issued, the yield on the new 10-year bond has increased by 6 basis points.
A year of strong FPI inflows into the bond market was followed by a reversal in April. It is expected by market players that selling pressure will continue and that the bond market will stabilise after the June inclusion of the JP Morgan bond index. A net amount of Rs 6,174 crore was removed from the debt market by foreign investors in April.
In April, the benchmark bond’s yield increased by 17 basis points. The conflict is shrouded in a great deal of ambiguity. I believe we are getting close to the top of the range if the geopolitical risk does not continue to rise, said Sharma.
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