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MUMBAI: Indian government bond yields were largely unchanged on Thursday, recovering from an initial decline as profit-booking stemmed the recent downward trend sparked by optimism over monetary policy easing on Friday.

The benchmark 10-year yield was at 6.6830%, as of 10:00 a.m. IST, compared with its previous close of 6.6845%. Earlier in the day, the yield had eased to 6.6760%, its lowest level since Feb. 2022.

“It seems state-run banks are largely on the offer side, and are getting an easy exit, with foreign banks largely on the bid side, hence we are not seeing any aggressive bidding interest so far today, but cannot rule out a downward decline through the day,” a trader with a primary dealership said.

State-run banks have net sold bonds worth close to 350 billion rupees ($4.13 billion) over the last four trading sessions, when the benchmark bond yield tumbled 12 basis points.

Bond yields have declined since last Friday after data showed a sharp slowdown in the country’s economic growth to a seven-quarter low of 5.4% in the July-September quarter.

The Reserve Bank of India’s rate-setting panel’s decision is due on Friday, while the spread between the 10-year bond yield and the central bank’s key interest rate has slipped to the lowest level in over seven years in the run-up to the event.

Along with bond yields, overnight index swap rates-the closest indicator of interest rate expectations-are down by around 20 basis points after the growth data.

India bond yields to trend higher as US peers spike

The decline in bond yields and swap rates is signalling that the market is pricing in easing from the central bank, which may move to loosen monetary policy via a cut in the cash reserve ratio (CRR) for banks.

Market participants have estimated that a cut in the CRR by 50 basis points could release over 1.1 trillion rupees into the banking system immediately.

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