Indian bond yield eases tracking fall in US yields

Surety bonds are legally enforceable tripartite contracts that guarantee compliance, payment and/or performance.(Representative image)

Indian bond yields eased on March 13, tracking a drop in US Treasury notes’ yields, dealers said.

The yield on the 10-year benchmark bond eased to 7.3579 percent at the close from 7.4321 percent in the previous session. The bond yield opened at 7.3512 percent, the lowest since February 20.

“Indian bond market yields have dropped, taking cues from the drop in US bond yields as markets pare down the terminal rate expectations of the US Fed,” said Puneet Pal, Head- Fixed Income, PGIM India Mutual Fund.

The 10-year US treasury yields dropped over 20 basis points in the previous week to 3.69 percent. On March 13, it fell over 10 basis points. One basis point is a hundredth of a percentage point.

As per bond market dealers, the fear of 50 bps rate hike by the Fed has eased after the Silicon Valley Bank collapse and they expect the US central bank to go slower on rate hikes.

The US market is expecting a 5 percent Fed terminal rate, down from 5.6 percent expected just a week back, Pal added.

The Indian market’s expectations of a rate hike have also come down, with the OIS curve pricing in 65 percent probability of a rate hike in the April MPC meeting, he added.

Some dealers are also of view that most investors are turning towards safe securities after fall of SVB Bank.

US banking regulators on March 10 announced the closure of Silicon Valley Bank (SVB) and seized its assets to protect depositors. The authorities shut down two more banks—Signature Bank and Silvergate Bank.

Dealers expect yields to ease till the announcement of the new borrowing calendar for the first half of next fiscal year.

"It is possible that the 10-year yield may trade as low as 7.25 percent by March end," said Sandeep Bagla, CEO, Trust Mutual Fund.