India 10 year bond yield hits near 2-month low; elections in focus

MUMBAI: India's 10-year benchmark bond rose for a second consecutive session, sending yield to a near two-month low, as sentiment improved on expectations the opposition Bharatiya Janata Party (BJP) would win a majority in the general elections.

For the week, the benchmark bond yield dipped 6 basis points (bps), to mark its fourth weekly fall in five, helped partly by easing concerns about liquidity conditions as the Reserve Bank of India injected cash through term repo auctions.

The improved sentiment came as shares hit a record high ahead of the conclusion of India's five-week-long elections on Monday. Exit polls from media organisations will be issued after the last votes are cast, and actual results will be unveiled on May 16.

A BJP victory is widely seen as boosting markets since the party is seen as being more business friendly, but some analysts warn that volatility could increase given these expectations are now widespread.

"Much of the potential good news, i.e., formation of a stable government, seems to have been discounted. As such, I expect volatility to rise next week," said A. Prasanna, economist at ICICI Securities Primary Dealership Ltd (ISEC-PD).

Prasanna expects 10-year yield in 8.65-8.85 percent band for the next week.

The benchmark 10-year bond yield ended down 1 bp at 8.75 percent, after falling as much as 4 bps during the session to 8.72 percent, a level last seen on March 13.

In late afternoon, yields had briefly risen as much as 4 bps after TV channels cited a news agency as reporting that India's election body had said exit polls would only be allowed on May 16.

But officials from the Election Commission later clarified exit polls would be allowed to be unveiled on May 12, as scheduled.

Traders cited little impact from the cut-offs at the debt auction worth 160 billion rupees ($2.67 billion), since the results met expectation.

In the overnight indexed swap market, the benchmark five-year swap rate ended down 2 basis points at 8.25 percent, while the one-year rate also ended lower by 2 bps at 8.51 percent.