India's 10-year bond yield poised for 5th weekly fall; rupee gains

India's benchmark 10-year bond yield dropped marginally on Friday, on course for its fifth straight weekly fall, while the rupee gained tracking an uptick in domestic share markets.

Sentiment for bonds was buoyed on the back of the Reserve Bank of India's 350-billion-rupee ($4.80 billion) worth bond buy on Thursday, while a fall in US Treasury yields also helped.

India's benchmark 10-year bond yield was trading at 5.96 per cent by 0852 GMT, down 1 basis point on the day, while the partially convertible rupee was at 72.98 per dollar, compared to its previous close of 73.10.

Traders were awaiting the results of a 320-billion-rupee debt sale but expect good demand following Thursday's bond buy. Bond yields have dropped in each of the last five weeks and in eight out of the last 10, as the central bank actively intervened in the market, conducted open market purchases and cancelled auctions to ensure yields remain capped.

Lower yields are critical to ensure that the government's borrowing cost is curtailed as it looks to borrow a massive 12.06 trillion rupees from the market in 2021/22. The RBI wants to cap the benchmark 10-year bond yield at 6 per cent, local media Informist reported earlier in the day, citing an unnamed senior banking official.

“Half the stock (of 10-year bonds) is with the RBI and they have made the market realise that they will buy below 6 per cent on this paper by cancelling auctions when people are bidding above 6.05 per cent levels,” said Murthy Nagarajan, head of fixed income at Tata Asset Management.

“The medium term will depend on many factors but the RBI will be able to control yields at least for this financial year.”