Govt Bond Yields Edge Upward After 4 Weeks; Foreign Investment Nine Times As High As Last Year

Indian government bond yields experienced a slight uptick, after four consecutive weeks of fall. The benchmark 10-year yield closed at 7.06 per cent, from its previous close at 7.04 per cent. This momentum was matched by treasury bill yields too, after the same upward pressure was observed in US Treasury yields, albeit to a lesser extent. Concerns over potential rate cuts by the Federal Reserve in June have propelled US Treasury yields upward. Upward pressure on Indian government bond yields occurred amid heightened interest from foreign investors in Indian government bonds.

World Bank blog cited experts anticipating a USD 30 to 40 billion influx of foreign investment, over the next five years, and freeing up an equivalent amount of domestic capital for private sector investment.

Foreign portfolio investors (FPIs) have already Rs 45,572 crore into the Indian debt market, with investments reaching 66 per cent of the total investment they made in 2023. It is over nine times Rs 5,000 crore during the same period last year. The sharp increase is attributed to the upcoming Indian government bond inclusion in the global bond indices of JP Morgan and Bloomberg. Meanwhile, 17 state governments plan to auction securities worth Rs 50,206 crore via the Core Banking Solution (E-Kuber) system on March 19, 2024.

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Treasury And Bond Yields

The indicative yield for T-bills stands at 6.87 per cent, 7.13 per cent, and 7.09 per cent for three-month, six-month, and 364-day durations, respectively. In the 1-2 year tenure, the 7.72% GS 2025 show a yield of 7.09 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) show yields of 7.05 and 7.05 per cent, respectively.

Bond Market Outlook

Foreign investors continue buying spree in Indian government bonds, impacting bond yields. The main motivating factor is the upcoming inclusion of Indian debt in JPMorgan's emerging market debt index in June. Other than this factor, attractive yields compared to other markets, improving economic indicators, weakening inflation, and GDP growth contribute to this surge in foreign investment. RBI has indicated that rates will only be lowered once the inflation mark is brought down to 4 per cent.