After a nine basis point (bps) drop in the previous session, the yield on the benchmark 10-year bond fell another four basis points on Monday to close the session at 6.71%—the lowest level since February 2022.
In fact, the yields have come off as much as 15 bps over the last four sessions and are set for the best yearly show in four years. Between January and now, the yields on benchmark bonds have come off 47 bps. That compares with a fall of 15 bps recorded in 2023 and surges of 87 bps and 59 bps recorded in 2022 and 2021, respectively.
Despite a strong US dollar and higher Treasury yield that has dampened the appeal of emerging-market assets, Indian bonds have largely remained resilient due to the inclusion of the foreign bond index.
The inclusion in JPMorgan’s flagship index has attracted inflows to the tune of $15 billion so far this year. Further strong demand from local investors, such as insurance companies and pension funds, also weighed on the rally.
Meanwhile, economists from Goldman Sachs Group to UBS cut their full-year growth outlook after the GDP print for the September quarter came in below their estimates on Friday.
Even as growth momentum was expected to moderate in this quarter, the economic growth was much lower than the consensus and our expectation of 6.5% y-o-y, wrote UBS in a note.
“We believe a high real policy rate and softening growth could create room for the RBI to cut the policy rate 75bps over the coming months despite weaker forex,” wrote Tanvee Gupta Jain, Chief India Economist at UBS.
The significant miss in GDP, along with the strong US dollar, dragged the rupee further lower. The local currency lost 21 paise on Monday to hit a new record low of 84.70.
With Monday’s loss, the local unit has given up close to 2% over the last six months and has fared the worst among Asian currencies after South Korea’s Won.
(Edited by : Ajay Vaishnav)
