MUMBAI: Indian government bond yields ended lower on Friday, with the benchmark bond yield ending at its lowest level in over 13 months, on expectations of better-than-expected inflation data.
The 10-year benchmark 7.26% 2033 bond yield ended at 6.9938%, after closing at 7.0234% in the previous session. The yield, however, ended 2 bps lower, after falling by 11 bps in the last week.
The 10-year benchmark bond yield settled at the lowest closing level since April 7, 2022.
“While the broader market consensus for April CPI is 4.80%, some believe that the actual number may come below that, which pushed yields lower towards the end of the session,” a trader with a state-run bank says.
India’s inflation likely cooled to an 18-month low in April to 4.80%, below the RBI’s upper tolerance limit for the second consecutive month, according to a Reuters poll.
“We believe the worst is behind us, with the April reading likely to be below 5% and inflation likely to trend at ~5% levels through the rest of the year,” Nomura said in a note.
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The RBI had surprised the market with a pause on rates in April when a 25-bps hike was largely expected. Nomura expects a policy pause followed by 75 bps of cumulative rate cuts starting in October.
“The benchmark bond yield will sustain below 7% if we see a big fall in inflation, especially core inflation because the central bank has highlighted that as one of the key monitorables,” said Dwijendra Srivastava, chief investment officer-debt at Sundaram Mutual Fund.
However, resistance will build up after the initial move in the near-to-medium term because the bond supply is on the higher side, Srivastava added.
If the benchmark yield remains below 7%, it will find support at 6.90%, according to traders, and is seen in a range of 6.95%-7.05% next week.
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