MUMBAI: Indian government bond yields declined slightly in early deals on Thursday, with the spread between benchmark yield and the central bank’s policy rate easing to 15 basis points a day ahead of a widely-anticipated interest rate cut.
The 10-year yield was at 6.6520% as of 9:45 a.m. IST, compared with Wednesday’s close of 6.6616%. The central bank’s policy repo rate currently stands at 6.50%.
“Any upmove in yields is unlikely now till the monetary policy decision, while on the downside, we could see the benchmark yield touching around 6.62%, going into the policy decision,” trader with a primary dealership said.
The Reserve Bank of India is widely expected to cut interest rates for the first time in nearly five years in Governor Sanjay Malhotra’s first monetary policy review. A majority of economists and market participants expect a 25 basis points cut on Friday.
Bond trading firm STCI Primary Dealer said it expects a 25 bps cut, along probability of another round of debt purchase, in a similar fashion to what was recently announced.
Indian bond yields to continue flattish trend as traders await RBI decision
Hopes of a rate cut have risen since the RBI announced its mega liquidity infusion package through which it would inject around 1.50 trillion rupees ($17.14 billion) into the banking system.
The RBI has already injected around 640 billion rupees through an open market purchase of bonds and FX swap, while a 56-day repo worth 500 billion rupees is due Friday.
This would be followed by two more open market purchases of 200 billion rupees each on February 13 and February 20. Apart from this, the RBI has also bought bonds worth around 310 billion rupees from the secondary market in two weeks to January 24.
Most market participants expect the RBI’s bond purchases to continue into the upcoming financial year as well. As a result, bonds are seeing increased buying interest from foreign investors as a rate action is widely getting factored in.
Source: Brecorder
