Indian government bond yields showed a huge surge on April 12, 2024, with the benchmark yield posting the highest single-day rise in six months. This surge mirrored the change in US yields following higher inflation data was released there, casting doubts on interest rate cuts by the Federal Reserve this year. Following higher-than-expected inflation data, U.S. yields climbed to levels seen five months ago. The benchmark 10-year yield closed the week at 7.17 per cent, a huge increase from last week's close of 7.11 per cent. This was the biggest rise in the yield since October 6, 2023, when the central bank announced using open market sales of bonds to manage liquidity.
RBI Governor Shaktikanta Das had in the latest MPC meeting emphasised the central bank's focus on lowering the inflation rate while maintaining the repo rates at the same levels for the seventh consecutive time. Meanwhile, two state governments collectively announced plans to auction securities worth Rs 1,900 crore through the Core Banking Solution (E-Kuber) system on April 16, 2024. Further, the central government had already laid out plans to borrow Rs 3.21 trillion through Treasury bill sales in the April-June quarter.
The indicative yield for T-bills stands at 6.87 per cent, 7.02 per cent, and 7.04 per cent for three-month, six-month, and 364-day durations, respectively. In the 1-2 year tenure, the 5.22% GS 2025 show a yield of 7 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 and 7.17 per cent respectively.
Looking at the prospects of FY 25, market experts had earlier anticipated potential adjustments in repo rates towards the end of 2024, when retail and food inflation moderates. That is when the new CPI inflation numbers came.
Murthy Nagarajan, Head-Fixed Income, Tata Asset Management said, "This CPI inflation number is along expected lines. Food inflation at 8.52 is keeping inflation above the RBI target of 4 per cent. The state loan auction is also low at Rs. 1900 crores. The ten year which has touched 7.18 per cent should go back towards 7.15 levels on Monday."
The inclusion of Indian government bonds in JP Morgan's index is expected to attract USD 20 to 40 billion in the next two years. This could lead to substantial foreign investment, potentially strengthening the rupee and bolstering the economy.
