The benchmark 10-year government bond yield dipped through the week and ended at 7.15 per cent on Friday, from last week's close at 7.21 per cent.
On Wednesday, the US Federal Reserve made the decision to keep interest rates unchanged at 5.25 to 5.5 per cent. Following this, on Thursday, government bonds strengthened and dipped 3 basis points as traders covered short positions. The Fed's policy announcement on Wednesday suggested that interest rates could remain high for an extended period, which dampened expectations of rate cuts soon.
Meanwhile, the outflows from the debt market owing to FPIs continue because the rupee has hit a record low this month, while the 10-year U.S. yield has surged 49 basis points.
Looking ahead, six state governments have collectively announced auction of securities worth Rs 9,900 crore through the Core Banking Solution (E-Kuber) system on May 7, 2024.
The indicative yield for T-bills currently stands at 6.99 per cent, 7.03 per cent, and 7.07 per cent for three-month, six-month, and 364-day durations, respectively. In the 1–2-year tenure, the 5.63% GS 2026 indicates yield of 7.12 per cent.
Moving on to longer tenures, the 7.37% GS 2028 (4–5-year tenure) and the 7.18% GS 2033 (9-10 year range) both show yields of 7.15 per cent respectively.
Foreign portfolio investors continue selling consistently in both debt and equity markets over the past 15 days, amounting to a total outflow of USD 2.3 billion (equity plus bonds).
A significant part of these outflows can be attributed to weakness in the local currency and a surge in U.S. yields as investors have their rate cut expectations dampened. However, market experts feel the weakness doesn't matter as much as to sustain outflows.
Despite surge in foreign investor selling in Indian government bonds this month, the highest monthly sales since the Covid-19 pandemic, market experts quoted by Moneycontrol feel it is only an aberration, with inflows likely to follow in the coming months.
Experts feel the current outflow will continue marginally, till the market stabilises after the inclusion of Indian bonds in JPMorgan bond index in June. Marginal outflow may continue till then, due to absence of compelling reasons to buy.
The forthcoming inclusion of Indian government bonds in JP Morgan's index in June 2024, is anticipated to attract USD 20 to 40 billion in the next two years.
