Indian Bond Yields Saw Biggest Weekly Dip In 7 Months; Infra, AT1 Bond Issues Expected Ahead

Indian bond yields dipped 10 bps during the week following dovish US Federal Reserve stance. Banks are now expected to gear up to tap the bond market through infra bonds and AT1 bonds
Indian Bond Yields Saw Biggest Weekly Dip In 7 Months
Indian Bond Yields Saw Biggest Weekly Dip In 7 Months

Indian government bond yields saw a sharp fall this week-end, with the benchmark yield posting its biggest weekly decline in over seven months after the US Federal Reserve struck a dovish tone at its policy meeting.

Closing the week at 7.1624 per cent, the benchmark 10-year bond yield, dropped 10 basis points (bps) lower for the week, the largest decline since May 5, 2023.

Venkata Krishnan Srinivasan, founder of financial advisory firm Rockfort Fincap LLP says, “In spite of spike in inflation figures and ongoing negative liquidity in the Indian banking system, the Indian bond market 10-year yields turned buoyant last week following the fall in 10-year US treasury yields.”

The Indian government raised Rs 33,000 crore through sale of bonds, which include Rs 10,000 crore from 10-year bonds. Concurrently, 13 state governments have offered to sell securities by way of auction, for an aggregate amount of Rs 19,592 crore. The auction will be conducted on the Reserve Bank of India (RBI) Core Banking Solution (E-Kuber) system on December 19, 2023.

Treasury And Bond Yields

The indicative yield for T-bills stands at 6.97 per cent, 7.19 per cent, and 7.18 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 7.08 per cent.

Moving on to longer tenures, both the 7.37% GS 2028 (4-5 year tenure) and the 7.18% GS 2033 (9-10 year range) show yields of 7.07 and 7.17 per cent, respectively. Except for T-bills, indicative yields for all the above-mentioned instruments showed a huge dip compared to the previous week.

Bond Market Outlook

Srinivasan highlights major bond issuers, such as Power Finance Corporation (PFC), Indian Railway Finance Corporation (IRFC), Bank of Maharashtra, Tata Capital Housing Finance, and many other issuers to tap the bond market this week. “We expect HDFC Bank, Shriram Finance, Tata Projects, GMR airports, Bank of Baroda, NabFid and many others to issue non-convertible debentures (NCDs) in the coming days,” he added.

“Both public sector and private sector banks are gearing up to tap the bond market through infra bonds, tier-2 subordinated bonds and AT1 bonds. It is worthwhile to mention that investors are showing large investment appetite for long-tenure AAA credit-rated bonds in spite of negative liquidity in the system, and at the same time they are looking out for yield pick-up, based on risk reward for AA+ and below credit-rated instruments. Non-banking financial company (NBFC) yields are slowly spiking after RBI circular on risk weightage. Many NBFCs are gearing up themselves to raise capital,” Srinivasan further said.

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