MUMBAI: India’s 10-year benchmark govt bond yield logged its biggest jump in six months in Oct, and its first monthly rise in four, as the rally in US Treasury yields outweighed the effect of the local central bank easing its policy stance.
The benchmark 10-year bond yield ended at 6.85% on Thursday, up two basis points on the day. It jumped 10 basis points this month. The markets will be closed on Friday for Diwali. Yields had declined in early Oct after RBI eased its policy stance to ‘neutral’, prompting expectations that rate cuts could start as soon as Dec. However, those hopes were dimmed a few days later after RBI governor Shaktikanta Das said it would be very premature to cut rates at this stage, a thought policymakers largely echoed, as the minutes of their meeting showed last week.
“The start of rate cuts will be delayed to Feb 2025 on the assumption of fading supply distortions,” said Radhika Rao, a senior economist at DBS Bank. On the contrary, local yields tracked the sharp spike in US Treasury yields this month – the 10-year yield has risen nearly 50 bps to 4.28% – as strong economic data dulled hopes of aggressive Federal Reserve rate cuts. Traders have priced in a 94% probability of a 25-bps cut next week and now expect only two 25-bps cuts in the three meetings from Dec to March, versus four earlier.
The jump in yields, however, was tempered by value buying, especially by state-run banks that net bought nearly $5 billion in bonds from the secondary market this month, per clearing house data. “As yields adjust, attractive levels will draw demand as rupee-denominated benchmark bonds are currently the highest yielding in the region,” DBS’s Rao added.