The first session of the new quarter saw marginal declines in Indian government bond yields, as investors took advantage of a breach of a key technical level for the benchmark. The yield for the 7.26% 2033 bond stood at 7.1087% as of 10:00 a.m. IST, slightly lower than the previous session’s 7.1166%. This follows the bond’s biggest single-session jump since November 3, 2022, resulting in a rise of 13 basis points (bps) for June after three consecutive months of easing.
While there haven’t been significant fundamental changes, market sentiment is positive due to oversold bonds from the previous session and the breach of the 7.08% level, which has encouraged fresh buying. Furthermore, strong tax collections have also contributed to the positive mood, with goods and services tax collections climbing nearly 12% year-on-year to 1.61 trillion rupees ($19.65 billion) in June.
However, Indian bond yields experienced a jump on Friday, following a surge in U.S. yields and weaker-than-expected demand for the benchmark note at the weekly auction. U.S. yields remain elevated, with the 10-year note trading near the crucial 3.84% mark and the two-year yield at 4.91%. This has been accompanied by an inversion that stays above 100 bps, as strong data raises expectations of further Federal Reserve rate hikes. The odds of an increase in July have surged to around 84%.
Despite the positive factors in the market, market participants predict that Indian bond yields will continue to rise in line with the trend seen in June. This is mainly due to a strong lineup of debt supply and the unlikelihood of a rate cut before the first half of next year. In this quarter alone, New Delhi plans to raise 4.47 trillion rupees through bond sales, while states aim to raise 2.37 trillion rupees.
In conclusion, Indian bond yields experienced a slight decline in the first session of the new quarter, driven by value purchases from investors following a breach of a key technical level. Positive market sentiment is also supported by strong tax collections. However, the rise in U.S. yields and the unlikelihood of a rate cut in the near future suggest that Indian bond yields will continue to rise.
