MUMBAI: Indian government bond yields dropped on Thursday, with the 10-year bond yield posting its steepest decline in over 15 weeks, as traders covered short positions and resumed buying at key technical levels.
The benchmark 10-year bond yield ended at 6.5328%, in its biggest fall since May 13, versus Tuesday’s close of 6.5997%.
The local bond market was shut on Wednesday on account of a holiday.
Bonds were buoyed by short covering and resurgence of buying interest after the 10-year yield failed to breach key technical levels, traders said.
“The support near 6.65% opened the door for a much needed retracement which is quite normal after such a sharp movement,” said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.
“6.50-6.53% range is a crucial level and will be closely watched by market participants.”
Washington’s implementation of additional tariffs also stoked concerns that it will hurt India’s growth, fueling expectations of more rate cuts by the local central bank, traders said.
Indian bonds end lower on fiscal worries; 10-year yield at 5-month high
U.S. President Donald Trump’s doubling of tariffs on goods from India to as much as 50% took effect on Wednesday, escalating tensions between the world’s two largest democracies and strategic partners.
If the effective tariff rate sticks for a year, India’s gross domestic product growth can slide by 0.7 percentage points, said Pranjul Bhandari, chief economist, India and Indonesia, HSBC India.
Meanwhile, Nomura retained its long India 5-year government bond versus overnight index swap rate call, and will add 10-year bonds if authorities announce measures to aid bond market, it said in a note.
Rates
India’s overnight index swap rates fell on Thursday, amid receiving pressure as demand improved for government bonds.
The one-year OIS rate closed nearly 4 bps lower at 5.4875% and the two-year OIS rate also ended over 5 bps down at 5.4550%. The liquid five-year OIS rate also settled over 4 bps lower at 5.735%.
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