India 10-year benchmark government bond yield at 6.29% vs previous close 6.30%

India 10-year benchmark government bond yield at 6.29% vs previous close 6.30%

Indian government bonds exhibited stability on Wednesday, with the yield on the benchmark 10-year bond remaining at 6.3090%. This stability was primarily due to the absence of new domestic factors influencing the market. The yields on the 10-year bond and the five-year 6.75% 2029 bond were steady at 6.3090% and 5.9875%, respectively, compared to their closing prices on Tuesday [1].

The stability in Indian government bonds comes despite a decline in U.S. Treasury bonds. Traders are closely watching U.S. Treasury movements, as they are expected to be key drivers for future bond movements. Foreign investors have increased their allocation to India's four-year paper, finding the yields attractive. These investors net bought more than 13 billion rupees ($151.2 million) of 7.26% 2029 bond in the last two trading sessions, according to CCIL data [1].

The overnight index swap rates (OIS) for India's shorter-term bonds showed minimal movement, while the five-year rate saw some upward pressure due to elevated U.S. Treasury yields. The one-year OIS rate was at 5.53%, the two-year OIS rate was at 5.50%, and the liquid five-year rate rose by 1 basis point to 5.74% [1].

India's annual retail inflation slowed to 2.10% in June, the lowest since January 2019. This slowdown, coupled with the Reserve Bank of India's (RBI) ongoing cash removal from the banking system, has led to increased pressure on the long end of the yield curve. The RBI has been conducting a variable rate reverse repo since June 27, with banks parking 1.52 trillion rupees ($17.68 billion) with the central bank [3].

The U.S. consumer prices rose 0.3% in June, marking the largest increase in five months. This uptick, driven by higher costs for some goods, suggests that tariffs are starting to show an impact on inflation, potentially prompting the Federal Reserve to hold off on rate changes until September. The U.S. 10-year bond yield rose 1.4% to 4.49% on Monday, nearing the crucial 4.50% mark [2].

In summary, Indian government bonds remained stable on Wednesday, with yields showing minimal movement. The market is awaiting fresh cues from both domestic and international factors, particularly the U.S. Treasury movements and inflation data releases.

References:
[1] https://economictimes.indiatimes.com/markets/bonds/india-bonds-steady-as-traders-await-fresh-cues/articleshow/122554527.cms
[2] https://www.livemint.com/market/stock-market-news/india-bond-yields-inch-up-tracking-us-peers-11752493459727.html
[3] https://economictimes.indiatimes.com/markets/bonds/india-bonds-flat-ahead-of-india-us-inflation-prints/articleshow/122428924.cms