Bond yields nudge higher post weekly food inflation declines to 7.61% for June 25

Pre Weekly Food Inflation Data:

Indian bond yields extending their gaining momentum have nudged higher on Thursday tracking US treasury yields and higher global crude oil prices. Bond yields also moved up as traders behaving cautiously, preferred staying on the sidelines ahead of the food inflation data due to be released later in the noon and Rs 12,000 crore bond sale auctions scheduled to be held tomorrow.

The weekly food and fuel price data would be watched out as it would be crucial for providing cues on broader inflation ahead of the industrial data due next Tuesday and monthly inflation on July 14. This data would help cement views for the likely action by the central bank at its policy review on July 26 where the market expects the Reserve Bank of India to raise key rates by a quarter percentage point.

On the global front, U.S. Treasury prices rose on Wednesday as Portugal's downgrade to junk status a day earlier revived fears Europe's debt problems could cascade, spurring safe-haven demand for low-risk government bonds. Brent crude climbed above $114 a barrel, supported by a more-than-projected drop in U.S. crude stocks and expectations that China's monetary tightening cycle may be nearing its end.

Back home, the Government of India have announced the sale of three dated securities for Rs 12,000 crore on July 8, 2011, which includes (i) “8.07 percent Government Stock 2017” for a notified amount of Rs 3,000 crore (nominal), (ii) “8.13 percent Government Stock 2022” for a notified amount of Rs 6,000 crore (nominal) and (iii) “8.28 percent Government Stock 2027” for a notified amount of Rs 3,000 crore (nominal) through price based auctions.

The yields on 10-year benchmark 7.80% - 2021 were up 1 basis point at 8.34% from its previous close of 8.33% on Wednesday

The benchmark five-year interest rate swaps were up 1 basis point at 7.71% from its previous close of 7.70% on Wednesday.

Post Weekly Food Inflation Data:

India’s food inflation measured by the Wholesale Price Index (WPI) has moderated to 7.61% for week ended June 25 from 7.78% in previous week. This moderation in food inflation is due to the reduced prices of vegetables, pulses and potato. As per the official data, pulses became over 9% cheaper year-on-year during the period under review. Prices of vegetables also came down by 8.74%, while potatoes became 2.13% cheaper on an annual basis. This seven week low food inflation has come as good news for the government.

However, the fuel and power group index continuing its trend has edged higher. Further, advances in monsoon improves prospect of further decline, at least in food prices even as concerns over the headline inflation remain, due to rising global fuel and commodity prices.

According to the data released by Ministry of Commerce and Industry, the index for Food Articles group rose by 0.5% percent for the week-ended June 25, to 190.8 from 189.8 for the previous week. The index for primary articles group which has the highest weightage of 20.12% in WPI rose by 0.2% for the week at 197.8 from 197.4for the previous week. Meanwhile, the  index for Fuel & Power group which carries a weightage of 14.91%, rose by 3.8 percent to 166.3 (Provisional) from 160.2 (Provisional) for the previous week due to higher prices of kerosene (18%), LPG (15%) and high speed diesel (9%).

The yields on 10-year benchmark 7.80% - 2021 were up 2 basis point at 8.35% from its previous close of 8.33% on Wednesday.

The benchmark five-year interest rate swaps were up 1 basis point at 7.71% from its previous close of 7.70% on Wednesday.