Mumbai: Indian federal bond yields fell to within striking distance of one-year lows on Wednesday, 16 January, driven by a rally in US Treasuries and on increasing bets of a rate cut at a central bank policy meeting on 29 January.
At 9:28am, the 10-year federal bond yield was at 7.54%, a shade lower than the last close of 7.55% and within touching distance of 7.51% hit last Friday, its lowest since early January 2007.
Total volume was a robust Rs14.85 billion ($377 million) on the central bank’s electronic platform.
“There seems to be a lot of support for bond yields around these levels, and prices should consolidate around these levels before the policy meeting,” said Satish Jeurkar, head of fixed income at Saraswat Bank.
The 10-year bond yield is down more than 35 basis points from mid-December. Bonds have rallied as cash conditions in the banking system improved and as speculation grew of a the first rate cut cut since 2003 due to low inflation and economic data.
But some expect prices to settle around current levels as investors gear up for a fresh batch of supplies.
India’s central bank will auction Rs65 billion of treasury bills on Wednesday and Rs40 billion of market stabilisation scheme (MSS) bonds on Thursday.
Spreads between 1-year and 10-year bonds widened one basis point to 25 basis points on Tuesday, according to IDBI Gilts.
“We believe the present rally in gilts is getting overdone,” Merrill Lynch said in a recent note.
“This is because the medium-term outlook, in our view, is clouded by rising inflation risks — high money supply, uncertain winter crop and shooting oil prices,” it said.