Stable Indian Bond Yields Anticipated in Light of Upcoming Government Buyback

As the Indian government prepares for a scheduled buyback of its bonds, the early trading on Thursday is expected to see little variation in bond yields. Market players are holding their positions in anticipation of the buyback, with few new developments to sway trading directions.

10-Year Bond Yield Predictions

The focal point of attention is the benchmark 10-year government bond yield, which is predicted to fluctuate within a tight range of 7.10% to 7.15%. This comes after the bond closed at 7.1343% in the previous session. A private bank's trader suggested that the bond market maintains a positive outlook since the buyback announcement, which should keep yields stable, especially in light of lower yields seen in the U.S.

Implications of Bond Buyback

The Reserve Bank of India's bond buyback plan involves repurchasing bonds worth up to 400 billion rupees, equivalent to approximately $4.79 billion. This move aims to boost liquidity in banks that has been on the decline over recent weeks. 'This buyback announcement is just to reduce the government surplus and ease banking sector liquidity,' mentioned Puneet Pal, Head of Fixed Income at PGIM India Mutual Fund. Pal also noted that increased government surplus typically leads to tighter banking liquidity due to low government spending despite continued borrowings.

Additional liquidity is anticipated from the RBI's financial year 2024 dividend to the government, which is expected to be around 850 billion rupees, with some forecasts putting it as high as 1.2 trillion rupees.

Global Yield Comparisons and Market Sentiments

The 10-year U.S. bond yield has been hovering near 4.50%, with the market pricing in a two-thirds likelihood of a rate cut by the Federal Reserve in September. While rate cuts were previously seen as less likely due to persistent inflation and strong economic data, the sentiment has shifted to account for the possible adjustment.

Key Market Indicators:

Brent crude oil futures saw a small increase to $83.82 per barrel. Meanwhile, the 10-year and two-year U.S. Treasury yields stood at 4.5003% and 4.8470% respectively. The RBI's auction will involve buybacks of three specific bonds, totaling 400 billion rupees.

bonds, yields, buyback