Indian bond yields may keep rising in next quarter amid heavy supply - analysts

ICICI Securities

30/06/2023 10:53

By Dharamraj Dhutia
       MUMBAI, June 30 (Reuters) - Indian bond yields will
extend their rise into the next quarter due to a strong line-up
of debt supply and as chances of a rate cut before the first
half of next year look unlikely.
    The benchmark bond yield  IN10YT=RR  is up 12 basis points
so far in June, after dropping 32 bps in April-May.
    A surprise pause by the Reserve Bank of India in April
prompted traders to bet on a quick pivot in the interest rate
cycle, but a hawkish guidance in June dampened their hopes.
    "With the global backdrop turning unfavourbale, hopes of
quick rate cuts have washed out, and focus will shift to factors
like demand-supply dynamics which also does not look very
favourable," said Abhishek Upadhyay, senior economist at ICICI
Securities Primary Dealership.
    Bonds were supported by the demand from insurance companies,
excessive inflows into mutual funds and one-time investor demand
in the April-June quarter, said Vijay Sharma, senior executive
vice president at PNB Gilts. However, there are no such positive
triggers in the second quarter, prompting yields to settle at
higher levels, Sharma added.
    Indian insurance companies, as well as mutual funds, had
received large fund inflows at March-end due to tweaks in
taxation, most of which went into bonds in April and May,
traders said. 
    Benchmark 7.26% 2033 bond yield  IN072633G=CC  was trading
at 7.1072%, its highest since May 2, after dropping to a more
than one-year low of 6.9442% on May 17.  
    The yield curve could steepen, with the 10-year yield rising
to 7.16-7.20% in the next quarter, Jayesh Mehta, India treasurer
at Bank of America, said, while ICICI Securities' Upadhyay sees
it in a 7.00%-7.25% band in the near term. 
 
     Traders pointed to the lack of redemptions in
July-September, when no bonds mature, which will offset the
heavy debt supply. 
    New Delhi is scheduled to raise 4.47 trillion rupees by way
of bonds in July-September, a tad above the 4.41 trillion rupees
in the first quarter when redemptions amounted to 1.6 trillion
rupees.
    Despite the negative factors, fresh buying is likely in the
7.15%-7.25% zone from long-only investors, said Vikas Garg, head
of fixed income at Invesco Mutual Fund. 
 
($1 = 82.0300 Indian rupees)

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Movement in Indian 10-year benchmark bond yield    https://tmsnrt.rs/3XyOLkt
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 (Reporting by Dharamraj Dhutia; Editing by Swati Bhat and
Dhanya Ann Thoppil)
 ((Dharamraj.dhutia@tr.com))