Indian government bond yields saw no change on November 16, 2023, following the central government's final debt auction for the financial year. The stable U.S. yields and upcoming rate cuts led to bond yields ending on a flat note this week unchanged from last week. The benchmark 10-year bond yield closed at 7.0968%, at the same level as last week's yield which was the highest level since January 31, 2023. The bond yields then had risen five basis points from the previous week.
On Monday, the bond market will remain closed for a local holiday. Throughout the week traders remained cautious amid Brent crude oil contract persistence above the $80 per barrel mark, and any further rise might impact local inflation metrics. RBI Governor Shaktikanta Das last week said the central bank wants more assuring figures on inflation before lowering repo rates from 6.5 per cent. It pegged retail inflation at 5.4 per cent in 2023-24 and expects it to ease to 4.5 per cent in the next financial year. Consequently, Indian debt market participants have also pushed their expectations for the start of rate cuts, evident in the overnight index swap curve.
Centre raised Rs 30,000 crore through bond sales, including Rs 12,000 crore in 7.25% GS 2063 bonds. The auction cut-offs were in line with estimates. Meanwhile, 13 state governments plan to auction securities worth Rs 30,200 crore via the RBI Core Banking Solution on February 20, 2024.
With Indian bonds poised to attract USD 100 billion in foreign inflows due to inclusion in the JM Global Bond Index this June, experts continue highlighting that this is the opportune moment to lock in on peak rates before rate cuts.
The indicative yield for T-bills stands at 7.05 per cent, 7.17 per cent, and 7.14 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 7.06 and 7.08 per cent, respectively.
REC Limited (formerly Rural Electrification Corporation Limited) plans to issue bonds worth Rs 5,500 crore including the green shoe option on February 21, 2023. A day before that Power FInanc Corporation is also mulling another issue of the same size.
Market analysts advise locking in on the current high accrual income potential by maintaining bond holdings until maturity, especially as interest rates are expected to decline in the future. Also with the last central government bond auction concluded, supply pressures are expected to ease out till April.
