Indian government bond yields dip tracking US peers. Read on to learn about FPI holdings after JP Morgan index inclusion and bond market outlook.
Government benchmark bond yields ended the week lower, mirroring the trend in the US market. The benchmark 10-year yield closed at 6.90 per cent, slightly lower than the previous day's 6.916 per cent. Last weekend, the benchmark 10-year yield was 6.93 per cent.
US yields plunged to a fresh six-month low on Thursday amidst concerns about the US economy after manufacturing data was released. A day before on Wednesday held rates steady but noted its progress on inflation which made market participants price in about 85 basis points of rate cuts in 2024 and 50 bps in the September meeting.
Also, the Bank of England cut its key interest rate by a quarter percentage point to 5 per cent for the first time since the pandemic, which experts feel acts as an additional cue for the Reserve Bank of India to consider a similar step.
Experts believe that the new rules implemented by the central bank for better liquidity management at banks will lead to a further reduction in bond yields. Meanwhile, Livemint reported that the Centre has plans to raise at least Rs 10,000 crore through sovereign green bonds between October and March to cover its larger goal of raising Rs 25,000-30,000 crore for FY25 through green bonds.
The indicative yield for T-bills currently stands at 6.67 per cent, 6.78 per cent, and 6.79 per cent for three-month, six-month, and 364-day durations, respectively. In the 1-2 year tenure, 7.59% GS 2026 indicates a yield of 6.80 per cent.
Moving on to longer tenures, 7.37% GS 2028 (4-5 year tenure) and the 7.10% GS 2034 (9-10 year range) show indicative yields of 6.81 and 6.90 per cent respectively.
After the government bond's inclusion in JP Morgan's global bond index, FPI's holdings under the Fully Accessible Route rose by Rs. 14,916 crore to Rs 2,03,444 crore by July end. Reportedly, the government is considering discontinuing Sovereign Gold Bond issuance due to cost concerns and minimal benefits to investors. A decision on discontinuing the scheme may be made at the upcoming meeting next month.
Yields on longer-tenure government bonds rose after the RBI withdrew free access to new 14-year and 30-year bonds for foreign portfolio investors. This change is expected to redirect inflows towards shorter-term bonds.
Market participants feel bond yields will remain stable, with the benchmark 10-year yield expected to fluctuate between 6.90 per cent and 7.03 per cent in the near term. The stability is supported by lower government borrowing and RBI's draft norms on the Liquidity Coverage Ratio (LCR) increasing banks' demand for government securities.