India’s 10-year Treasury yield saw the highest single-session increase in three months after the Reserve Bank of India (RBI) hiked the repo rate by 50 basis points on Friday. This will be the third consecutive hike by the RBI to contain inflation, which is above its comfort zone for the sixth consecutive month. Other bonds have also risen. Markets welcomed RBI’s rate hike move, including increase in bond yields. However, going forward, bond markets may focus on incremental G-Sec supply and take cues from global bond yields.
On Friday, the 10-year yield rose to 7.3% against the previous day’s level of 7.157%.
According to the Trading Economics website, India’s 3-year yield rose to 6.90%, while the 2-year Treasury yield rose to 6.64%. 5 years bond yields jumped to 7.03% on August 5.
On the latest performance, Vinod Nair, Head of Research, Geojit Financial Services, said, “Despite the rate hike on the higher side of expectations, the market welcomed the RBI’s 50 basis hike move with bond yields rising. Even though metal prices soften. are doing, reserve Bank of India It decided to keep the FY 2013 inflation target unchanged at 6.7%, which is above the tolerance level. However, given that Q3 and Q4 inflation is projected to range between 4% and 4.1%, the market remains optimistic for the future.”
In the August policy, the RBI increased its policy repo rate under the Liquidity Adjustment Facility (LAF) by 50 basis points to 5.40% with immediate effect. Meanwhile, the Permanent Deposit Facility (SDF) rate is adjusted to 5.15% and the Marginal Standing Facility (MSF) rate and the Bank Rate adjusted to 5.65%.
In addition, the six-member MPC decided to focus on the return of housing to ensure that inflation remains within the target while supporting growth.
Where is India’s bond yield head?
Abheek Barua, Chief Economist and Executive Vice President, HDFC Bank said, “There is a reversal of the bond market rally witnessed in the past few days and we expect close to 7.3-7.4% trade by the end of the 10-year paper. The RBI action in this quarter and the supply of both SDLs and central government bonds this year has led to a market decline.”
Churchill Bhatt, Executive Vice President, Debt Investments, Kotak Mahindra Life Insurance Company said, “Despite the recent fall in global commodity prices, MPC has retained its FY13 inflation forecast at 6.7%. Expressing confidence in India’s macro stability, the Governor allayed apprehensions about the volatility of the rupee. Going forward, the MPC assured the markets of its ability to give a soft landing for the economy while keeping inflationary pressures at bay.”
“Given the backdrop of the global slowdown and its accompanying deflationary impact, we believe that policy rates in India will ease below 6% this calendar year. In light of the same, further rate action will be more calibrated. and will be data-dependent. The yield on benchmark 10-year government bonds is expected to remain in the 7.10-7.40 band in the near future.”
According to Lakshmi Iyer, Chief Investment Officer (Debt) and Head Products, Kotak Mahindra Asset Management Company, the bond markets will now focus on incremental G-Sec supply and take cues from global bond yields going forward. Staggered Investment Approach in Fixed Income Stay”.
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