Indian bond yields on Friday fell to their lowest level in the past 18 months on falling crude oil prices and with the markets factoring in a rate cut in the June monetary policy meet.
The benchmark sovereign bond — 7.26 per cent yielding paper maturing in 2029 — fell by 10 bps to close at 7.03 per cent. Bond yields have fallen over 35 basis points (bps) since May 1 due to a combination of global and domestic factors.
Dealers believe positive global sentiments like falling crude oil prices and a falling US-treasury yield coupled with domestic factors like the NDA government coming to power and a hope of easier liquidity has led the yields to fall.
“Global fall in yields and crude oil prices coupled with a positive sentiment domestically with respect to continuation of policies of the BJP government has led the yields to fall,” said Devang Shah, deputy head-fixed income, Axis Mutual Fund. The benchmark US 10-year bond yield has dropped by 34 bps since May 1 to 2.15 per cent on Friday, mirrored by Indian yields. Crude oil prices at $65.18 bbl on Friday was the lowest in the past two months.
Experts also believe the fall in the GDP numbers will lead to further liquidity easing through OMOs and rate cuts to boost growth. India’s GDP grew at 5.8 per cent for the January to March period — the lowest in the past several years, government data showed on Friday.
Foreign portfolio investors turned net buyers in May and poured in nearly $300 million in Indian debt markets on the back of an outflow of $1.5 billion in April, signaling a global positive sentiment towards Indian debt.
Dealers also believe the central bank will want to have surplus liquidity in the coming months as it tries to fix problems with the troubled non-bank financial company (NBFC) sector. The RBI has already infused Rs 25,000 crore through OMOs in May and plans to infuse Rs 15,000 crore in June.
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