Indian Bond Yields Set for Movement: What Investors Need to Know

Bond Markets in India Anticipate Key Inflation Data

On March 12, the Indian bond market is bracing for a stable trading day as investors eagerly await critical inflation figures expected later today. The spotlight is also on the Reserve Bank of India’s (RBI) upcoming bond purchase, which is likely to influence market movements.

Market Predictions and Yield Movement

Traders anticipate that the benchmark 10-year yield will fluctuate between 6.68% and 6.71%, slightly up from the previous closing rate of 6.6938%. A trader from a private bank mentioned, “We expect a calm market open today, with eyes on the RBI’s open market bond purchase results. A significant decline in inflation could spark a modest rally in bond prices.”

RBI’s Strategic Bond Purchases

In a significant move, the RBI plans to acquire 500 billion rupees (approximately $5.73 billion) in government bonds maturing between 2029 and 2039. This purchase will be succeeded by another transaction of a similar scale on March 18. Over the past two months, the central bank has already procured 1 trillion rupees through open market operations (OMOs), with banks actively selling their securities at attractive yields to optimize their treasury positions.

Key purchases by RBI:
- 500 billion rupees today
- Similar-sized purchase on March 18
- Total of 1 trillion rupees acquired in the last two months

Market participants are keenly observing the acceptance levels of these offers by the RBI, as they may provide insights into future yield trends.

Inflation Data Insights

The retail inflation data for February is scheduled for release at 4:00 p.m. IST today, with a Reuters poll predicting a rate of 3.98%, a decrease from 4.31% in January. Should this forecast hold true, it would mark the first instance in six months that inflation falls below the RBI’s target of 4%.

Analysts at DBS highlight that a general decline in food inflation, particularly in perishables, is expected to be a significant factor in this reduction. This inflation report is crucial as it may solidify expectations for consecutive interest rate cuts in April.

Global Context and Additional Data

Later today, the Indian market will also keep an eye on U.S. retail inflation data, which is set to be released after local trading hours.

Key Market Indicators:

Brent crude futures: Up by 0.8% at $70.10 per barrel.
Ten-year U.S. Treasury yield: Currently at 4.2741%; two-year yield at 3.9369%.
RBI treasury bills auction: Valued at 330 billion rupees.
One-day variable rate repo auction: Amounting to 500 billion rupees.