G-Secs perk up, shrugging off higher June inflation reading

Posted on by

The Government Securities (G-Secs) market rebounded on Thursday, shrugging off a pickup in June retail domestic inflation even as it tracked declines in US Treasury yields.

US Treasury yields fell (prices rose) on the prospect of the US Federal Reserve at its next meeting, due later this month, as retail inflation for June at 3 per cent was 100 basis points lower than the previous month’s 4 per cent. .

In the domestic bond market, the yield of the 10-year reference paper (7.26 percent 2033 GS) melted around 4 basis points to close at 7.07 percent (previous close: 7.11 percent), with its price up nearly 30 pesos to close at 101.2775 rupees (100.9825 rupees). ).

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

“The US June inflation reading of 3 per cent appears to be moderate towards the Fed’s target rate of 2 per cent. Therefore, the US 10-year Treasuries rose. The yield returned to the level of 3.86 per cent from the level of 4.06 Per cent earlier Our market reflects the rise in US Treasury bonds.

Our inflation is not very high. We are still in the 4-6 percent comfort zone. At this time, our debt market is taking cues from the US market. This is why it has gone up along with the US market,” Ajay Manglunia, Managing Director and President, Investment Group, JM Financial.

High retail inflation

India’s retail inflation figures for June came in higher at 4.81 percent as against 4.31 percent in May 2023 due to sharp rise in vegetable prices.

Venkatakrishnan Srinivasan, Founder and Managing Partner, Rockfort Fincap LLP, emphasized that the trigger for the recovery in G-Secs was the rise in US Treasuries, which came on the back of a thaw in retail inflation in the US.

The market was just looking for a positive catalyst. Now, that catalyst came in the form of weaker retail inflation in the US, which in turn gives hopes that the Fed may not raise interest rates,” he said.

Venkatakrishnan expects the 10-year G-Sec to trade in the range of 7.05 percent to 7.15 percent over the next week.