Bullish Momentum Sends India's 10-Year Bond Yield to a 3-Year Low

Indian government bond yields experienced a sharp decline on Monday, with the 10-year benchmark yield briefly touching a near three-year low. This drop followed the Reserve Bank of India's (RBI) unexpected move to purchase a significant amount of bonds, signaling its intent to maintain easy liquidity conditions.

Key Highlights

• The 10-year benchmark yield briefly fell to 6.6465%, its lowest level since February 15, 2022.
• As of 10:00 a.m. IST, the yield stood at 6.6775%, compared to the previous close of 6.7206%.
• The RBI purchased bonds worth 101.75 billion rupees ($1.18 billion) in the secondary market during the week ending January 17, marking its first such operation in over three years.

Market Reaction

The RBI's bond purchase acted as a catalyst for the market, pushing yields lower. However, heavy selling by state-run banks has capped the downside, with yields expected to stabilize in the 6.66%-6.68% range. A trader from a private bank noted, "The market was waiting for a trigger to break below the 6.70% level, and the RBI's move provided that."

Investor Activity

Data from the clearing house revealed that the 'others' category of investors, which includes the RBI, purchased bonds worth approximately 200 billion rupees during the week ending January 17. This follows a purchase of 187 billion rupees in the previous week. The exact details of the RBI's purchases will be disclosed on Friday.

Upcoming Triggers for the Bond Market

The next major event for the bond market is the announcement of India's federal budget on February 1. Market participants are closely watching for the fiscal deficit and gross borrowing targets for the upcoming financial year. Expectations are that the government's borrowing for the financial year starting April 2025 will range between 14 trillion rupees and 14.50 trillion rupees, compared to 14.01 trillion rupees for the current year.

Conclusion

The RBI's bond purchase has injected bullish momentum into the market, driving yields to multi-year lows. However, the upcoming budget announcement will be a critical determinant of future bond market trends. Investors are advised to stay informed and exercise caution in their investment decisions.

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Categories: federal budget 2025, India 10-year bond yield, RBI bond purchase