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Bond yields edge lower on hopes of continued foreign inflow into emerging markets

30 Oct 2014 Evaluate

Bond yields were trading lower as Fed’s dovish tone on interest rates fuelled hopes of continued foreign inflow into emerging markets. However, further drop of yields is unlikely as some short positions built in earlier, because of this massive rally were squared off by traders.

The Federal Reserve, after a two-day meeting on Wednesday agreed to end bond purchases that have supported U.S. economic growth since the 2008 financial crisis, marking a milestone in the five-year-old recovery. At the same time, the Fed pledged to keep its benchmark short-term interest rate near zero for a 'considerable time' after the bond buying ends.

On the global front U.S. 5-year treasuries yield in Asian trade rose nearly 9 basis points to 1.592 pct, on track for biggest one-day yield increase since mid-March. Meanwhile, brent crude oil fell below $87 a barrel on Thursday, pressured by a stronger dollar after the Federal Reserve painted a brighter outlook for the U.S. economy.

Back home, the yields on new benchmark 8.40%- 2024 bonds was trading 2 basis points lower at 8.30% from its previous close of 8.32% on Wednesday.

The benchmark five-year interest rate swaps were trading flat at Wednesday’s close of 7.50%.

The Reserve Bank of India will conduct overnight reverse repo auction at variable rate today (October 30, 2014, Thursday) for a notified amount of Rs 10,000 crore. The auction will be conducted between 3.45 p.m. and 4.15 p.m. as per the revised guidelines on Term Repo Auctions issued on February 13, 2014.

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