The benchmark 10-year government bond yield remained unchanged from last week's close at 7.21 per cent. After a brief decline earlier in the week, Indian government bond yields surged yesterday and ended the week at the same five-month high recorded last week. The surge in U.S. yields, driven by bearish investor sentiment about rate cuts, was the main factor in the increase in bond yields. Another factor was the expectation of a new domestic debt supply.
The current yield is at the same level seen in the latter half of October 2023, when the central bank's announcement of open market bond sales to manage liquidity hit the markets.
Sebi monthly bulletin released on Thursday said that in March among BRICS Nations, the highest 10-year government bond yield was observed in Russia (13.99 per cent), followed by South Africa at 12.3 per cent, Brazil at 11.1 and then India. China's yield is far lower at 2.3 per cent.
In the debt category, corporates raised Rs 1,01,067 crore through private placement, and Rs 703 crore through public issuances, compared to Rs 8,276 core and Rs 517 crore respectively in February 2024.
Meanwhile, seven state governments collectively announced plans to auction securities worth Rs 14,700 crore through the Core Banking Solution (E-Kuber) system on April 30, 2024.
The indicative yield for T-bills currently stands at 6.92 per cent, 7.03 per cent, and 7.06 per cent for three-month, six-month, and 364-day durations, respectively. In the 1-2 year tenure, the 6.99% GS 2026 showed a yield of 7.16 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 7.20 per cent and 7.21 per cent respectively.
After a year of robust inflows, a change in sentiments of Foreign Portfolio Investors (FPIs) came about and they sold around Rs 2,669 crore worth of government bonds this week. In the previous week in April, they had withdrawn Rs 6,174 crore from the debt market.
Market Experts feel that the recent FPI outflow is driven by strong economic data from the United States and an increase in US bond yields, which reduced the attractiveness of emerging-market debts. They expect this selling pressure to continue marginally but anticipate that the market will stabilise after the inclusion of Indian bonds in the JPMorgan bond index in June. Till then there may be some outflow, as there is currently no compelling reason to buy, but outflow is likely to be minimal.
The inclusion of Indian government bonds in JP Morgan's index starting from June 2024, is projected to attract USD 20 to 40 billion in the next two years. This could lead to a substantial surge in foreign investment, potentially strengthening the rupee and bolstering the Indian economy. Market experts anticipate repo rates to come down towards the end of 2024 when there is a moderation in retail and food inflation
