Yield on the government securities has fallen around 38 basis points (bps) in 2024,so far, on higher demand from foreign investors, insurance companies and pension funds, experts said.
Stable macroeconomics condition and global interest rate trend also helped yields to ease during the year.
“This decline was driven by factors like stable macroeconomic indicators, foreign portfolio inflows and global interest rate trends,” said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP.
According to the Clearing Corporation of India’s (CCIL) data, yield on 10-year benchmark bond fell to 6.791 percent on December 20, from 7.174 percent on December 30, 2023.
Bond yield and prices are have an inverse relationship. When yield falls, prices go up and vice versa.
Yield on government securities has fallen despite the Reserve Bank of India keeping repo rate unchanged in 2024 at 6.5 percent to fight inflation and maintain stability in growth.
FPI demand
The demand from the foreign portfolio investors has increased in last year, especially after the inclusion of Indian bonds in the global bond index.
The investment by these entities in government securities, which are present in the global bond index has surged.
According to CCIL data, investment of FPI in G-sec in global bond index stood at Rs 2.49 lakh crore as on December 20 against December 29, 2023.
Foreign portfolio investors invest in government securities under Fully Accessible Route (FAR), which enables them to invest without any ceiling.
The investment may rise once Indian bonds gets included in Bloomberg bond index and FTSE Russel bond index, money markets experts said.
Way ahead
Experts say Indian bond yields may fall further on anticipation of rate cut in the February monetary policy review. The room for a cut has widened on sluggish growth and lower inflation in November.
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