India Bond Yields Stabilize: Key Demand Insights for New 10-Year Paper

Indian Government Bond Yields Show Slight Increase Amid Auction Anticipation

In the early hours of trading on Friday, Indian government bond yields exhibited a slight upward trend. The market’s attention is primarily on the upcoming auction of a new 10-year bond, scheduled for later in the day. As of 10:00 a.m. IST, the yield on the benchmark 10-year bond stood at 6.3573%, just above the previous closing of 6.3559%.

Significant Decline in Yields

The benchmark bond yield has experienced a notable decrease, dropping 22 basis points in April, marking the steepest decline since March 2020. This follows a 15-basis point drop in March, indicating a substantial shift in market dynamics.

Key statistics:
- April decline: 22 basis points
- March decline: 15 basis points
- Current yield: 6.3573%

Market Sentiment and Expectations

According to a trader from a state-owned bank, the recent surge in bond prices has been rapid, leading to a phase of consolidation. The trader noted, “With an aggressive cutoff price for the new 10-year bond, we might witness an increase in secondary market purchases.”

India’s strategy includes raising 360 billion rupees (approximately $4.29 billion) through bond sales, which features 300 billion rupees allocated for the new 10-year bond. This new issuance is set to replace the existing benchmark bond in the upcoming weeks.

Reserve Bank’s Role in the Market

The overall market sentiment remains optimistic, especially with the Reserve Bank of India planning to purchase bonds totaling up to 1.25 trillion rupees in four phases over the next three weeks. This follows a significant bond purchase of 1.20 trillion rupees in April, reinforcing the central bank’s commitment to stabilizing the market.

Monitoring Geopolitical Tensions

Investors are advised to keep a close watch on any developments concerning geopolitical tensions between India and Pakistan, which could influence market conditions.

Overnight Index Swap Rates

Indian overnight index swap (OIS) rates have dipped slightly, continuing a trend despite a four-month decline through April. The one-year OIS rate has not seen trading yet after falling 37 basis points last month. Meanwhile, the two-year OIS rate is down marginally to 5.50%, following a 34-basis point decrease in April. The five-year swap rate also shows a slight dip, currently at 5.61%, after a 29-basis point decline last month.