India’s bond yields, after falling for four straight days on the back of Reserve Bank of India’s decision to maintain status quo, surged slightly on Monday, but Singapore-based DBS group has said that in the short term India’s bond markets are likely to consolidate.
RBI’s decision to hold rates on February 7, less hawkish than anticipated, helped allay fears of the bond market which became further volatile on the news of fiscal slippage. The yield on benchmark 10-year bonds on Monday was 7.5%. On Tuesday, the market was closed due to a public holiday.
“Volatility in Indian bond market has subsided in the past week. Bond investors were relieved that the RBI, at its last meeting on 7 February, did not shift to an outright hawkish tone and kept to its data-dependent guidance,” Radhika Rao, Economist at DBS Group said.
It is being expected that between now and the release of RBI’s minutes for the sixth bi-monthly monetary policy, there will not be any surprises. “With the 8 February debt auction seen as the last for this fiscal year, this should assuage worries of supply and demand mismatches,” Radhika Rao said.
She added that negativity regarding the fiscal slippage and rising inflation has already been discounted in the current level of bond yields and so in the short-term, there will consolidation. However, in the long term, she said, that the domestic factors and higher global yields will push the benchmark 10-year bonds up at a gradual pace.
In government bonds are worst performers in the Asian market and for the past three months have been grappling with the fears relating to higher crude oil prices, fiscal slippages and faster-than-expected rise in UST yields. With tightening liquidity conditions and narrowing balance from a strong surplus to neutral, the focus will also be shifted to Rs 1 trillion worth of Market Stabilisation Scheme (MSS) bonds maturing in March.