Yield on the 10-year benchmark government bond dropped to a low of 7.19% on Tuesday, five basis points lower than its closing level at the end of last week. The benchmark bond closed at 7.19% on Tuesday. Falling government bond yields lead to lower borrowing costs across the economy.
Bond prices and yields move inversely. A fall of one basis point in the 10-year bond corresponds to a rise in price of around 7 paise. One basis point is 0.01%. The total traded amount for government bonds in the secondary market was ₹40,190 crore on Tuesday.
“Recognition by different index providers and readiness to invest in Indian bond markets itself is a huge thumbs up. For a long time, nothing was coming and then we got JP Morgan followed by the latest Bloomberg announcement. This also opens up the road for further inclusion in the Bloomberg indices,” said Gopal Tripathi, head of treasury and capital markets, Jana Small Finance Bank.
With the Centre nearing the end of its borrowing programme for FY24 and states so far borrowing a lower-than-projected figure in January-March, traders said that the 10-year bond yield could ease around 5-7 basis points more in coming weeks, barring unexpected developments on the fiscal front ahead of the Union Budget in February.On Monday, Bloomberg Index Service Ltd (BISL) said that based on client feedback, the index managers will launch a process to gauge investor views on the proposed inclusion of Indian government bonds, which are fully accessible to overseas investors in the Bloomberg Emerging Market (EM) Local Currency Index.
The proposal seeks to include Indian fully accessible government bonds in the index over a five-month period starting September 2024.If India were to be included in the Bloomberg EM index, overseas investment in the region of $2-4 billion is expected to flow to the bond market. Coupled with estimated flows worth $20-25 billion from JPMorgan’s decision to include Indian bonds in its emerging market index, the expected foreign investment in local debt is seen exerting downward pressure on borrowing costs as well as providing a buffer for the rupee in a volatile global environment.
“The Bloomberg report has definitely improved market sentiment and provided a bullish bias at a time when a domestic rate cut is still some time away and the budget is coming up,” said Naveen Singh, head of trading, ICICI Securities Primary Dealership
“Further, Saudi Arabia’s decision to cut oil prices has led to a 4% decline in crude prices, which is a big sentiment boost for India on two fronts – inflation and the trade deficit,” he said.