Indian government bond yields ended higher for the week of March 22, 2024, as states surprised the market with plans of a record debt sale in the next week. As many as eighteen state governments collectively announced auctions of securities worth Rs 60,032 crore via the Core Banking Solution (E-Kuber) system on March 26, 2024, in the last week of the financial year. The benchmark 10-year yield closed at 7.09 per cent, from its previous close at 7.04 per cent. Last week had ended with the yield at 7.06 per cent. The surge in government bond yields came after a 4-basis point decline on Thursday, due to a decline in US Treasury yields after the US Federal Reserve (Fed) announced its decision.
Federal Open Market Committee (FOMC) in its February meeting maintained the range of its Fed Funds Target Rate (FFTR) unchanged at 5.25 per cent to 5.50 per cent. Further, the European Central Bank and Bank of England also kept their deposit rates unchanged.
The indicative yield for T-bills stands at 6.87 per cent, 7.12 per cent, and 7.08 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 7.09 per cent.
Moving on to longer tenures, the 7.06% GS 2028 (4-5 year tenure) and the 7.18% GS 2033 (9-10 year range) show yields of 7.10 and 7.07 per cent, respectively.
The reduction in the supply of 5 to 10-year Government securities is anticipated to lead to a steepening of the yield curve when India gets added to the JP Morgan global emerging market index in June 2024.
Pankaj Pathak, Sr. Fund Manager-Fixed Income Quantum AMC, said RBI is concerned over potential market reactions to any change in policy tone, as the RBI governor indicated in the last MPC meeting, “As markets are front-running central banks in anticipation of policy pivots, any premature move may undermine the success achieved so far”. Pathak feels this is why RBI remains wary about easing its stance on inflation. "The RBI seems comfortable or rather bullish on the growth outlook. So, there is no urgent need for a rate cut to support growth," he added.
"With inflation coming down, bond yields should also go down. However, there is a confluence of other positive drivers supporting the bond market. We expect bond yields to go down from current levels supported by falling inflation, potential rate cuts in India and globally, favourable demand-supply dynamics and global bond index inclusion. Considering a strong case for long-term yields to decline over the next 1-2 years, we believe long-term government bonds offer a rewarding opportunity," Pathak said.
