India bond yield curve may steepen further on 10-yr supply spike: Analysts

Analysts expect India's government bond yield curve to steepen further after the gap between the liquid five-year and benchmark 10-year bond yields jumped to the highest in 15 months, driven by an increase in 10-year issuances in the April-September borrowing plan. 

Concurrently, the spread between the 10-year and ultra-long 30-50-year bond yields has shrunk after the government reduced supply in the latter, following demands from market participants. 

Context 

India aims to gross borrow 8 trillion rupees ($93.63 billion) through the sale of bonds in the April-September period, lower than market expectations Rs 8.3 trillion - Rs 8.7 trillion. 

The government has, however, raised the share of 10-year bonds to more than a fourth of the total supply, up by 200 basis points (bps) from the previous financial year. 

 

Why it's important? 

The government bond yield curve has been largely flat in the last few months and also inverted at some points amid tight banking liquidity conditions. 

The corporate bond yield curve has also remained inverted, tracking government yields, due to patchy demand across maturities. 

Corporate and non-banking finance companies, the biggest issuers of bonds of up to five years, have been restricted by higher borrowing costs, limiting them from passing on the benefit of lower rates to their consumers. 

Market reaction 

The 10-year benchmark bond yield was at 6.58 per cent on Friday, while the five-year yield slipped to 6.44 per cent. 

The spread has risen to 14 bps, the widest since January 2024. 

The 30-50-year bond yields were in the 6.93 per cent-6.94 per cent zone on the day, with the spread reducing to 35-36 bps. They rose more than 40 bps earlier this month. 

Key Quotes 

The bond yield curve could see mild steepening, led by supply dynamics that stay heavy at the longer-end and comfortable liquidity conditions in the April-June period, which will aid the shorter-end, said Madhavi Arora, chief economist at Emkay Global. 

"We should start going into the positive zone starting April, and that should further help the shorter-end of the curve," said Avnish Jain, fixed income head at Canara Robeco Mutual Fund.  (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)