MUMBAI: Indian government bond yields are expected to stay benign in early deals on Wednesday as easing inflation bolstered the bullish sentiment, while traders await the central bank’s liquidity injection.
The benchmark 10-year bond yield is likely to move between 6.40% and 6.43%, a trader at a private bank said, compared with its previous close of 6.4135%.
The “Market was expecting a lower inflation print and the actual data is slightly below estimates. So, in the near term, we do not foresee any major negatives for the bond market,” the trader said.
Retail inflation eased to 3.34% in March, below economists’ estimate of 3.60% and the lowest since August 2019, as food prices continued to moderate.
That gives the Reserve Bank of India room for deeper rate cuts amid fears the U.S.-China trade war may hit global growth.
Last Wednesday, the RBI lowered rates for a second consecutive time, as expected, and changed its monetary policy stance to “accommodative” from “neutral”, signalling room for more cuts ahead.
Indian bond yields lower on RBI’s surprise liquidity move
Nomura expects inflation to remain sub-4% over 2025, but has a more bearish outlook for growth at 5.8% and consequently, expects 100 bps of additional rate cuts this year.
The RBI is scheduled to buy bonds worth 400 billion rupees ($4.67 billion) and conduct a 43-day variable rate repo auction to boost liquidity on Thursday.
It has already bought bonds worth 400 billion rupees in the first two weeks of April and is scheduled to buy a similar quantum in the next two weeks.
Rates
India’s overnight index swap rates are expected to decline further as lower inflation and liquidity injection favour receiving interest especially at the shorter end, traders said.
The one-year swap rate fell to 5.75%, while the five-year swap rate ended at 5.71%, with the spread at its lowest since November 2022.
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