Yield on government securities eased to a three-years low on March 27 due to a host of reasons including foreign investors inflows into bonds, easing inflation and hopes of a rate cut by the Reserve Bank of India (RBI).
The yield for the 10-year benchmark bond 6.79 percent 2034 was trading at 6.589 percent at 12 pm on March 27. This was the lowest level since January 14, 2022, when it was at 6.582 percent, according to Bloomberg data.
The yield on government securities, especially on the 10-year benchmark bond, has been falling since the start of this month. Data indicates that it has eased 15 basis points (bps) so far in March.
After this drop, the spread between the India 10-year benchmark bond and the RBI's repo rate stood at just 35 bps. Usually, this difference is in the range of 60-80 bps.
Foreign investors inflows
Money coming in from foreign investors was the biggest factor for yields easing since early March, money market experts said.
According to Clearing Corporation of India data, foreign investors have put funds worth Rs 13,709 crore so far this month into government securities, which are now part of global indexes.
Data showed that investments by foreign investors in government bonds under fully accessible route (FAR) stood at Rs 2.99 lakh crore as on March 27, compared to Rs 2.85 lakh crore as on February 28.
Inflows from these entities has surged due to various factors such as better macroeconomic conditions and hopes of another rate cut in the RBI's April policy, experts said.
Rate cut expectations
Anticipation of the central bank lowering its policy rate has increased in the last few weeks due to better macroeconomic conditions amid the rate of inflation coming in lower than the RBI’s medium-term target of 4 percent, and a rebound in growth in the third quarter of this fiscal year.
While economists are pencilling in a 25 bps rate cut in April's monetary policy, some believe there could be another rate cut in June as well. If that happens, it will take the total reduction in the benchmark rate to 75 basis points so far from February 2025, when the RBI’s monetary policy committee for the first time in five years cut the repo rate, by 25 bps.
Government borrowing calendar in focus
Experts said that the bond markets might be closely monitoring the government's borrowing plan for the next financial year, which may be announced this week.
On February 1, the government in Budget 2025 announced Rs 14.82 lakh crore of gross market borrowing for FY26, compared to Rs 14.01 lakh crore for FY25. However, the stated net market borrowing to finance the fiscal deficit was lower at Rs 11.54 lakh crore for FY26, from Rs 11.63 lakh crore in FY25.
Usually, the bond market gives clarity to investors and traders about the movement in the yields and accordingly, they may place bids throughout the fiscal as per maturities lined up in borrowing.
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