Govt bond yields unchanged despite April rate cut bets as supply hurts

Indian government bond yields started the last month of the financial year on a flattish note as bets of a rate cut in the next month were outweighed by overarching supply worries.

 

The benchmark 10-year yield ended at 6.7383%, compared with its previous close of 6.7286%. 

India's economy expanded by 6.2% in the October-December period, picking up from a revised 5.6% growth in the previous quarter but marginally lower than the 6.3% estimated increase in a Reuters poll. 

In terms of monetary policy implications, the GDP data, along with other factors, continues to support the view of the Reserve Bank of India lowering rates from 6.25% in April, with another cut likely later, ICICI Securities Primary Dealership said in a note.

 

"The risk is towards more easing from the RBI, rather than less." 

However, even as many market participants expect another rate cut, investors are choosing to not indulge in heavy bond purchases amid rising supply pressure and uncertainty over demand from the RBI. 

Indian states aim to raise 505 billion rupees ($5.78 billion) on Tuesday, over 100 billion rupees more than planned. 

They are scheduled to raise another 1.35 trillion rupees through three more auctions this month, while state-run companies are also anticipated to come up with bond issuances. 

The majority of supply from states is concentrated on the longer end of the curve and comes amid waning appetite for long-duration papers given the uncertainty over the RBI's purchase plans. 

The RBI conducted a three-year dollar-rupee swap on Friday, which will infuse around 870 billion rupees into the banking system.

Since mid-January, it has infused over 3.60 trillion rupees through measures including primary and secondary market bond purchases, forex swaps and early-April maturity repos.