MUMBAI, Jan 27 (Reuters) – Indian government bond yields plunged at a start of a busy week, with the 10-year plummeting to a three-year low, as surprise bond purchases by the central bank boosted investor sentiment.
The benchmark yield ended at 6.6800%, the lowest for 10-year bond yield since Feb. 18, 2022, compared with the previous close of 6.7206%.
With Reserve Bank of India’s hand at bond purchases in the week before the last one, yields will head into 6.65%-6.68% zone, which was seen during the December monetary policy announcement, Alok Sharma, head of treasury at ICBC said.
“The 10-year bond yield can visit 6.50% levels if the FOMC (Federal Open Market Committee) and budget outcomes align the stars for a favourable RBI policy,” he said.
The Federal Reserve policy decision is due on Wednesday followed by India’s federal budget on Feb. 1 and the RBI policy decision on Feb. 7.
The RBI bought bonds worth 101.75 billion rupees ($1.18 billion) in the secondary market in the week ending Jan. 17, its first such operation in over three years, signalling its intent to keep liquidity conditions easy.
This coincided with daily fund infusion using overnight repos.
These operations have raised bets the central bank may opt for an interest rate cut in February.
Meanwhile, the so-called ‘others’ category of investors, which includes the RBI, bought bonds worth 187 billion rupees last week. How much of these were purchases by RBI, if any, would be known on Jan. 31.
Investors keenly await the fiscal deficit and gross borrowing targets for the next financial year in the budget. Traders currently peg these at around 4.5% of GDP and 14 trillion rupees to 14.50 trillion rupees, respectively. ($1 = 86.3800 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)
