Govt Bond Yield Remain Stable, FPIs Stop Selling Spree; Know Bond Market Outlook

The benchmark 10-year government bond remained relatively stable through the week and ended at 7.16 per cent on May 10, 2024. The last week's close was 7.15 per cent. Though Foreign portfolio investors (FPIs) sold Rs 17,083 crore of Indian stocks this month, in the debt market they have reversed the selling spree. In the debt market, Foreign Portfolio Investors (FPIs) bought a net of Rs 43,307 crore. Additionally, FPIs bought into Rs 7,917 crore of Indian debt through the debt-voluntary Retention Route (VRR), as reported by the National Securities Depository Limited (NSDL). Notably, this is amidst the hardening of US bond yields.

The easing of global uncertainties and the announcement of the buyback of government securities have helped the yields to remain stable.  

The Reserve Bank of India (RBI) announced an auction to be conducted on May 17, 2024, to buyback G-secs worth Rs 60,000 crore of government securities probably to alleviate tight liquidity conditions. Three securities namely 6.18% GS 2024, 9.15% GS 2024, and 6.89% GS 2025, would have matured on November 4, 2024, November 14 and January 16, 2025, respectively.

Corporate bond yields have dropped by 5-7 basis points (bps) in the last two weeks due to the easing of government securities yield after RBI's buyback announcement. According to Moneycontrol, three-year corporate bond yields fell by 5 bps, five-year yields fell by 7 bps, and 10-year yields fell by 6 bps.

Looking ahead, four state governments have announced the auction of securities to raise a total of Rs  6,500 crore through the Core Banking Solution (E-Kuber) system on May 14, 2024.

Treasury And Bond Yields

The indicative yield for T-bills currently stands at 6.99 per cent, 7.03 per cent, and 7.07 per cent for three-month, six-month, and 364-day durations, respectively. In the 1-2 year tenure, the 5.63% GS 2026 indicates a yield of 7.13 per cent.

Moving on to longer tenures, the 7.37% GS 2028 (4-5 year tenure) and the 7.18% GS 2033 (9-10 year range) both show indicative yields of 7.16 per cent.

Bond Market Outlook

FPIs selling in Indian government bonds have reversed course and now they have bought 43,307 crore of Indian debt. The interest in Indian debt is not surprising as in June 2024, the JP Morgan index is set to include Indian government bonds which is expected to attract USD 20 to 40 billion in the next two years.  Meanwhile, the debt market looks ahead for US and local inflation data next week.  

Amidst recent huge buyback announcements, Finance Minister Nirmala Sitharaman on May 9, 2024, indicated that more buybacks can be expected regularly for supporting the RBI balance sheet and liquidity corridor.

On the same day, the US Treasury yields declined in anticipation of inflation reports that are crucial to the continuation Federal Reserve's plan to keep rates higher for longer. Market participants are expecting two 25-basis-point (bps) cuts in Fed rates this year, with the first cut expected in September.