Indian government bond yields inched up marginally on the weekend on March 5, 2024, reaching a nearly two-month high, after the Reserve Bank of India (RBI) announced its decision to maintain the repo rate at 6.5 per cent for the seventh consecutive time. The move was largely anticipated by the market.
The benchmark 10-year yield closed the week at 7.11 per cent, a marginal increase from Thursday’s close of 7.09 per cent. After the repo rate announcement, the yield had peaked at 7.12 per cent, the highest since February 14, 2024.
The Monetary Policy Committee (MPC) decided to keep the key repo rate unchanged at 6.50 per cent for the seventh consecutive time at the MPC meeting earlier this week. RBI Governor Shaktikanta Das emphasised the central bank’s focus on lowering the inflation rate, as the robust macroeconomic growth allowed it the space to do so.
Notably, for retail investors, RBI announced plans to launch a mobile application for its RBI Retail Direct portal, its online platform for investing in government securities. “To further improve ease of access, a mobile application of the Retail Direct portal is being developed. The app will enable investors to buy and sell instruments on the go, at their convenience. The app will be available for use shortly,” RBI said. The application is expected to enhance access to the central and state government bonds, Treasury bills, and sovereign gold bonds (SGBs).
Venkatakrishnan Srinivasan, founder of Rockfort Fincap LLP, appreciated the initiative, adding that it would make the investment process more straightforward and convenient for the retail investors. He said it would potentially reduce transaction costs by cutting commissions of intermediaries, and thus boost returns for investors.
Meanwhile, three state governments collectively announced plans to auction securities worth Rs. 6,500 crore through the Core Banking Solution (E-Kuber) system on April 8, 2024. Further, the central government had already announced plans in the previous week to borrow Rs. 3.21 trillion through the sale of Treasury bills in the April-June quarter.
Treasury And Bond Yields
The indicative yield for T-Bills stands at 6.87 per cent, 7.01 per cent, and 7.04 per cent for three-month, six-month, and 364-day durations, respectively. In the 1-2 year tenure, the 5.22% GS 2025 show a yield of 7.02 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 7.08 per cent and 7.11 per cent, respectively.
Bond Market Outlook
Looking ahead, market experts anticipate potential adjustments in repo rates towards the end of the year, when retail and food inflation moderates.
Suyash Choudhary, head – fixed income, Bandhan AMC said that the MPC announcement reiterated that going forward reinvestment risk was the most significant risk to guard against in fixed income.
“This view is based on an assumption of continuity in policy framework and direction from both the government and RBI. More to the point from a here-and-now perspective, the overnight rate is now more firmly anchored to the repo rate, and the yield curve is also decently positive. Bond valuations are attractive, and yields have decreased by only 25–30 basis points (bps) from last year’s highs. During this time, we have had bond index inclusion and strong inflows from foreign investors, a strong commitment to fiscal consolidation in the interim budget, lower than expected government bond supply announcement, a continued fall in local core inflation, and RBI easing its liquidity stance visibly,” Choudhary said.
