MUMBAI: Indian government bond yields ended lower on Wednesday, reversing a two-day trend, as investors indulged in value purchase after a selloff over the first two days of the week.
The 10-year benchmark bond yield ended at 6.4969%, after ending at 6.5139% on Tuesday, which was its highest since March 28.
The 10-year bond yield jumped as much as 15 basis points in the past two days after Prime Minister Narendra Modi unveiled sweeping goods and services tax reforms, expected to increase fiscal burden.
The move also completely erased the rally that followed S&P Global’s upgrade of India’s rating, as traders started fearing additional supply.
Despite lingering fiscal pressures, the fiscal deficit target is still achievable, a government official said.
Union Bank of India has a constructive view that longer-duration bonds offer better risk-reward versus the shorter end under current conditions.
“The centre’s clear signal of no supply glut and continued focus on borrowing discipline further strengthens our conviction for a favourable duration bias,” said Kanika Pasricha, chief economic advisor at Union Bank of India.
India bonds fall; 10-year yield hits 4-month high as fiscal worries sap demand
Immediately, investors remain focused on the minutes of the Reserve Bank of India’s August policy meeting, which are due after market hours.
Traders will assess the commentary for clues on the rate easing trajectory.
The central bank had kept the key interest rates unchanged, even as it slashed its annual retail inflation forecast, a decision that had led to a bond selloff.
Rates
India’s overnight index swap rates dipped in early trading hours, as traders resumed receiving floating rates after the rates rose to 2-month highs on fiscal worries.
The one-year OIS rate ended at 5.5250% and the two-year OIS closed at 5.4750%.
The liquid five-year OIS declined 2 bps to 5.7150%, amid receiving for a large foreign bank, traders said.
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