“Benign inflation and potential headwinds to GDP should help the RBI maintain a supportive monetary policy. In addition, the government’s still resilient fiscal footing and its commitment to fiscal consolidation should together help to revive the demand for India government bonds in the near term,” analysts at Barclays said in a report on Tuesday.
Barclays expects the yield on 10-year benchmark government bonds to ease to 6.25% by December-end. It closed at 6.48% Wednesday. Bond yields and prices move in opposite directions.
Reliance Industries has increased its asset-backed securities issuance to ₹21,000 crore, driven by strong investor demand. The securities, offering a 7.75% coupon, are backed by receivables from Reliance’s operating businesses and feature a four-year tenor. ICICI Prudential Mutual Fund is expected to lead investments, with participation from other major asset managers.
Economists at Union Bank of India see the possibility of a token 25- to 50-basis point rate cuts as part of coordinated government and RBI policy efforts to support growth. Policy steps by the central bank to address the dislocated bond market are also likely to be a key driver for the market. “We believe that the current levels are attractive to enter a tactical trade in long-duration bonds (especially G-secs),” they wrote in a report last week.
Bank of Baroda said the bond market is getting back to normal. “The tariff impact would be there for sure, but the GST cuts could provide some compensation. We are still talking of growth in the region of 6.5%,” said chief economist Madan Sabnavis.
AgenciesThat said, a growing mismatch between demand and supply at the long end of the yield curve remains a key concern for the market. Recent auctions saw states borrowing less than their notified limits because of the absence of long-term investors like insurance companies and pension funds in the market, bond traders said. Experts said if the RBI reduces the supply of long-term bonds in second-half borrowing, as suggested by banks in a meeting last week, it could compress spreads across the yield curve and soften yields on long bonds.In near term, release of the H2 borrowing calendar by September-end, developments related to an India-US trade deal and outcome of the Monetary Policy Committee’s meeting on October 1 are key events for market.
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