Govt Bond Yields Remain Steady Amid RBI's Hawkish Minutes, Foreign Investors Boost Demand

Indian government bond yields remained stable amid the RBI's hawkish minutes. Read how foreign investors are taking over the global bond index inclusion
Reserve Bank Of India,
Global Bond Index
Investors, Reserve Bank Of India, Global Bond Index

Indian government bond yields remained largely steady on February 23, 2024, as traders digested the hawkish sentiments from the Reserve Bank of India's (RBI) February meeting minutes, which showed that most monetary policy committee (MPC) members considered the current interest rates appropriate.

India's benchmark 10-year bond yield closed at 7.07 per cent, ending two basis points lower this week.

Yields had closed lower the previous day at 7.06 per cent, led by recent buying from foreign investors. Also, foreign investors have been on a buying spree ahead of the scheduled inclusion of Indian government bonds in JPMorgan's emerging market debt index from June.

Elsewhere, 12 state governments plan to auction securities worth Rs 32,848 crore via the Core Banking Solution (E-Kuber) system on February 27, 2024.

Bond market experts anticipate a positive long-term outlook for the fixed income market, on the back of decreasing bond supply and robust demand, and expect the government to reap the long-term benefits from the same.

Treasury And Bond Yields

The indicative yield for T-bills stand at 7.01 per cent, 7.18 per cent, and 7.13 per cent for three-month, six-month, and 364-day durations, respectively. In the 1-2 year tenure, the 7.72% GS 2025 show a yield of 7.04 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) show yields of 7.05 and 7.07 per cent, respectively.

Bond Market Outlook

Says Pankaj Pathak, senior fund manager-fixed income, Quantum AMC: “Foreign demand for Indian bonds has picked up meaningfully since the announcement of India’s inclusion in the global bond Indices in September 2023. Foreign portfolio investors (FPIs) have bought over $7.8 billion of Indian government bonds under the fully accessible route (FAR) since the announcement (as per FPI holding data upto February 14, 2024).” 

He says that falling bond supply and strong demand for bonds should bode well for the fixed income market. Longer maturity bonds will likely benefit most from the favourable demand supply mix, he adds.

“Market sentiment is upbeat on the back of falling inflation and the expectation of rate cuts by the RBI. It is also supported by robust demand for Indian government bonds from both domestic and foreign investors,” he says.

Earlier this week, the RBI said in its February bulletin that inflation expectations in India could stabilise and edge down going ahead, but renewed pressures from cereals and proteins cannot be ruled out. RBI is looking ahead to more assuring figures on inflation before lowering repo rates from 6.5 per cent.

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