Indian government bond yields remained largely unchanged at the start of a crucial week, as market participants weighed heavy debt supply, central bank bond purchases, and key inflation data releases in India and the U.S.
- Benchmark 10-year bond yield stood at 6.6902% at 9:45 a.m. IST on Monday, slightly up from 6.6881% in the previous session.
- Market experts anticipate potential fluctuations, given the interplay of various factors shaping the bond market outlook.
Also Read: Dalal Street Weekly Preview: 10 Market Movers, Including Inflation and Tariffs
Heavy Debt Supply Pressures Market
- Indian states are set to raise 495.22 billion rupees ($5.68 billion) through bond sales this week.
- This amount exceeds the initial borrowing estimate by 110 billion rupees, adding to the supply glut.
- Last week, state borrowings overshot plans by 100 billion rupees, heightening concerns over rising debt levels.
- Traders remain cautious, as the end of India’s financial year typically sees muted activity.
RBI’s Bond Purchases to Provide Stability
Despite mounting debt supply, RBI’s intervention is expected to limit a sharp rise in bond yields:
- The central bank will conduct a government securities purchase worth 500 billion rupees on Wednesday, easing market liquidity.
- Another 500 billion rupee bond purchase is scheduled for March 18.
- Additionally, RBI will execute a $10 billion forex swap on March 24, reinforcing liquidity support.
- These moves indicate RBI’s commitment to stabilizing the bond market amid increasing borrowing pressures.
Global Factors & Fed Rate Outlook
- U.S. Treasury yields rose last Friday, following Fed Chair Jerome Powell’s stance on inflation and interest rates.
- Powell signaled no urgency for rate cuts, citing uncertainty over the inflationary effects of previous U.S. tariff policies.
- Market expectations: The Fed is projected to cut rates by 100 basis points in 2024 and 75 basis points in 2025.
- Impact on India: Higher U.S. yields could put upward pressure on Indian bond yields, as foreign investors reassess their positions.
Inflation Data in Focus
- Key inflation figures from India and the U.S. are due this week.
- These reports will influence monetary policy decisions and bond market sentiment.
- Unexpected inflation readings may drive market volatility.
Must Read: RBI Eases Liquidity Concerns, but Economists Expect Another Rate Cut in April to Support Growth
Market Outlook
- Traders foresee volatility in the bond market due to a mix of heavy debt supply, central bank support, and global economic cues.
- A private bank trader noted, “The benchmark bond yield will react to multiple factors, some of which remain unfavorable.”
- While increased debt supply may push yields higher, RBI’s liquidity measures are expected to cushion any sharp rise.
- Market participants will keep a close eye on inflation data, global interest rates, and RBI’s policy stance in the coming weeks.
