Indian government bond yields showed a huge surge the whole week ending it, with the 10-benchmark yield hitting a five-month high on April 19, 2024. The FPI outflows and global economic trends played the major role in this surge.
The benchmark 10-year government bond yield saw a huge surge, a huge increase from the last week's close of 7.17 per cent. This level marked the highest yield recorded in the latter half of October 2023, when the central bank's announcement of using open market bond sales to manage liquidity came.
The fall in trade volume of the new 10-year bond was also observed and was partly attributed to investors' reluctance to sell at a loss as the yields sore new heights. The yield on the new 10-year bond has risen by 6 basis points since its issuance.
After a year of robust inflows from Foreign Portfolio Investors (FPIs), they reversed their course in April, withdrawing Rs 6,174 crore from the debt market. The pull was motivated by firm US economic data and surge in US bond yields, dampening the allure of emerging-market debts.
Further, escalating crude oil prices, after geopolitical tensions flared in the Middle East, further exacerbated by an Israeli strike on Iranian soil on Thursday, adding to market uncertainties.
Meanwhile, five state governments collectively announced plans to auction securities worth Rs 12,000 crore through the Core Banking Solution (E-Kuber) system on April 23, 2024.
Treasury And Bond Yields
The indicative yield for T-bills currently stands at 6.87 per cent, 7.03 per cent, and 7.05 per cent for three-month, six-month, and 364-day durations, respectively. In the 1–2-year tenure, the 5.22% GS 2025 showed a surge in yield to 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) both show yields of 7.23 per cent and 7.21 per cent respectively.
Bond Market Outlook
Looking ahead, market experts anticipate a cut down in repo rates towards the end of 2024, coinciding with moderation in retail and food. The recent CPI inflation numbers also supported this analysis. The inclusion of Indian government bonds in JP Morgan's index starting from June 2024, is projected to attract USD 20 to 40 billion in the next two years. This could lead to substantial surge in foreign investment, potentially strengthening the rupee and bolstering Indian economy.
Further the demand versus supply environment seems very favourable for government bonds, coupled with solid local macro-economic setting and a potential imminent turn in the global rate cycle. However fixed-income investors still face reinvestment risks after yields ride down the curve in the coming years.
