1. India bond yields continue to fall as RBI’s status quo helps allay post Budget fears

India bond yields continue to fall as RBI’s status quo helps allay post Budget fears

India's bond yields continued falling for the fourth day on the back of Reserve Bank of India's decision to keep repo rates on hold, less hawkish than expected, which helped allay post-Budget fears on fiscal slippage.

By: | Updated: February 9, 2018 3:15 PM
RBI Monetary Policy, Bonds, RBI, consumer price index, CPI, house rent allowance, HRA, Standard Chartered Bank India’s bond yields continued falling for the fourth day on the back of Reserve Bank of India’s decision to keep repo rates on hold. (Image: PTI)

India’s bond yields continued falling for the fourth day on the back of Reserve Bank of India’s decision to keep repo rates on hold, less hawkish than expected, which helped allay post-Budget fears on fiscal slippage. The yields on benchmark 10-year bonds on Friday fell to 7.46% from 7.6% on February 5.

On February 7, in its sixth and last bi-monthly monetary policy decision, the central bank decided to keep the repo rate unchanged for the third time with a neutral stance, saying that more data is required for a hawkish stand. The yields, however, continues to remain high since July 2016, up by nearly 90 bps in 2017, with sharp rise ahead of the Budget 2018 on macroeconomic risks of higher crude oil prices and populist measures.

Deputy Governor Viral Acharya, categorically, reiterated that the goal of RBI’s liquidity operations was to direct money supply conditions, not to manage prices of any particular long-term asset markets, referring to the recent jump in the domestic bond yields.

“10Y bond yields pulled back on February 7 on relief that the central bank did not adopt an outright hawkish tone and maintained its data-dependent guidance,” Singapore-based DBS group said. “Much of the negativity regarding the fiscal outlook and inflation concerns are in the price and thereby consolidative moves are likely in the near term. Longer out, we are still of the view that domestic factors and higher global yields will push India’s 10Y up at a gradual pace.”

In Asia, Indian government bonds have been the worst performers over the past three months as the market grappled with multiple worries – from fiscal slippages to rising oil prices to a faster-than-expected rise in UST yields. “We expect bond yields to head higher from current levels, but at a pace that is likely to moderate over the coming year,” it added. An expected long pause by the RBI in coming months may dampen the mood of the debt market.

Anand Bagri, RBL Bank’s domestic market head told Reuters that the bond markets have been “overly bearish” but the status quo has “assuaged some of these concerns” which have led to short-covering. He said that traders may turn cautious once again on bond supply concerns soon.

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