10-year benchmark G-sec yield ends over 4-month high on limited potential for rate cut

Bonds

Yield on the 10-year benchmark government securities ended over four months high on August 12 after the market anticipated limited potential for the rate cut, dealers said.

As per Clearing Corporation of India’s (CCIL) data, yield on 10-year benchmark bond ended at 6.492 percent, as compared to 6.497 percent at close on the previous trading session. The bond yield ended highest since April 3 when it closed at 6.497 percent.

Bond yields have been on the rise since the Reserve Bank of India (RBI) kept policy rate unchanged in the August monetary policy. Though the decision was in line with the market expectation, few participants expected a surprise rate cut.

“The market is currently looking ahead again and pricing in the limited potential for future monetary support. This suggests there is a limited scope for significant gains in bond portfolios,” said Mataprasad Pandey, vice-president of Arete Capital Service.

Further, BoFA Global Research report said that the pause by RBI last week indicated RBI would remain data dependent as the central bank waits to see the impact of its frontloaded easing on demand and waits for clarity on how external forces shape up.

“We believe that growth would guide RBI’s though process as inflation remains benign. We do not see any further cuts in our base case,” BoFA report added.

On the other hand, some experts believe that there is further scope for the easing of easing given the comfort from the easing inflation.

“Future course of monetary policy would be dependent on how the inflationary trajectory pans out in the next few months. We believe there is some scope for further monetary easing (maximum 50bp), however, this may unfold if the impact of tariff war on Indian economy becomes too adverse,” said Paras Jasrai, Associate Director at India Ratings and Research.

India’s retail inflation eased to an eight-year low of 1.55 percent in July, down from 2.1 percent in June, according to official data released on August 12. This is the first time since January 2019 that retail inflation fell below the 2 percent mark.

The moderation in retail inflation extends a six-month streak of sub-4 percent inflation, with the average since April holding below 3 percent.