India's 10-year bond yield ends at one-year low on policy pivot

The Indian government bond yields ended lower on Monday, with the benchmark bond yield ending at its lowest level in nearly one year, as traders and foreign banks increased purchases on bets of monetary policy pivots by central banks.

The 10-year benchmark 7.26 per cent 2033 bond yield ended at 7.0977 per cent, the lowest level since April 27, 2022, after closing at 7.1556 per cent in the previous session.
 

“Foreign banks were active in the primary auction last week and their buying has continued today as well, mainly leading to yields easing,” said a senior treasury official at a state-run bank.

Foreign banks have bought bonds worth Rs 10,200 crore ($1.25 billion) on a net basis in the last four trading sessions to Friday, data from Clearing Corp of India showed.

“There are visible signs of a slowdown in growth in the domestic economy,” said Sandeep Bagla, chief executive officer at Trust Mutual Fund. “With inflation expectations in check, the rally could spread in the coming days and the 10-year bond yield can be expected to go to 6.90 per cent.”

Earlier this month, the Reserve Bank of India (RBI) surprised markets by holding the key lending rate steady at 6.5 per cent, going against expectations of a 25-basis point (bps) increase.

However, the minutes of the central bank’s latest meeting showed that India’s current rate tightening cycle may not be over, as more hikes could be in the offing to align inflation with the RBI’s medium-term target of 4 per cent. Still, market participants expect the benchmark bond yield to not break 7.10 per cent-7.12 per cent levels convincingly unless there is any fresh trigger.

“With a regular supply of 10-year and 14-year bonds every alternate week, the yields may not fall much from current levels,” said Mandar Pitale, head of treasury at SBM Bank (India). Major focus will continue to remain on the Federal Reserve monetary policy decision due on May 3, with odds of a 25 bps move staying above 90 per cent.