Indian government bond yields ended the week on a flat with no fresh triggers. The benchmark 10-year yield was at 6.99 per cent on June 5, 2024, 1 basis points (bps) lower than the previous week.
Government bond yields ended the week on a flat following underwhelming inflows a week after the JP Morgan Global Index included Indian government bonds. Here’s the weekly bond market outlook
Indian government bond yields ended the week on a flat with no fresh triggers. The benchmark 10-year yield was at 6.99 per cent on June 5, 2024, 1 basis points (bps) lower than the previous week.
Apart from yields inching marginally down early on June 3, 2024 due to a pullback in the US Treasury yields, there were no triggers during the week. A week after inclusion of government bonds in the JP Morgan Global Bond Index, foreign investors have invested around Rs 5,200 crore through fully accessible route (FAR) bonds.
According to data from the Clearing Corporation of India (CCI), inflows slowed on June 5 after overseas investors bought Rs 428 crore in FAR bonds. The amount of inflows will now be keenly monitored by the debt market participants. Federal Reserve Chair Jerome Powell said the US Fed needs to gauge cutting interest rates with more data to avoid immediate inflation risk.
Emerging debt market benchmark JP Morgan GBI-EM Index included Indian government bonds on June 28, 2024 which is expected to attract around $25 billion in passive inflows into India. However, as the 10 per cent weightage of Indian government bonds in the index will be implemented over 10 months, the inflows will be staggered over this period, with experts predicting that the inflows will rise in the upcoming months.
The indicative yield for T-bills currently stands at 6.78 per cent, 6.9 per cent, and 6.94 per cent for three-month, six-month, and 364-day durations, respectively. In the 1-2 year tenure, 6.99% GS 2026 indicates a yield of 6.94 per cent.
Moving on to longer tenures, the 7.37% GS 2028 (4-5 year tenure) and the 7.10% GS 2034 (9-10 year range) show indicative yields of 6.98 and 6.99 per cent, respectively.
The crucial factors that debt market will focus in the upcoming Budget is the fiscal deficit target for FY25 and its trajectory for FY26. The Securities and Exchanges Board of India (Sebi) on July 3, 2024 reduced the face value of debt securities from Rs 1 lakh to Rs 10,000 to increase retail investor participation in the corporate bond market.
This is expected to increase liquidity in the market and provide retail investors with more options in terms of issuers, ratings, tenure and return on bonds. Additionally, investors anticipate 46 points rate cuts from the Federal Reserve in 2024 and the potential inclusion of Indian government bonds in the Bloomberg Barclays EM index and FTSE Russell index to bring down yields further.