The yield on the most liquid 10-year government bond closed at 6.77% on Wednesday, five basis points lower than the previous close. Bond prices and yields move inversely. A fall in government bond yields brings down the cost of borrowing across the economy as sovereign debt is the benchmark used to price corporate debt.
At its latest bi-monthly policy review, the RBI’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.50% while shifting its stance to ‘neutral’ from ‘withdrawal of accommodation.’
A neutral stance provides the RBI with the option to raise or lower interest rates, depending on the evolving inflation trajectory.
The earlier stance was adopted by the RBI when it started tightening monetary policy in 2022 in response to inflationary pressures stemming from the Ukraine war.
Given easing inflationary pressures, market participants perceive the shift to a neutral stance as a precursor to a rate cut and broad tolerance of surplus liquidity conditions by the RBI.”The RBI acknowledged the durable disinflationary trend underway although highlighting lingering domestic and global risks – signalling that future rate action would be data dependent. Given this, if conditions evolve favourably over the coming months, a December rate cut is not off the table,” HDFC Bank’s treasury research team wrote, predicting a fall in the 10-year bond yield to 6.60-6.70% by the end of the current fiscal year.
FTSE Cheer
Indian bonds opened the day on an upbeat note as FTSE Russell announced the inclusion of Indian government bonds in the FTSE Emerging Markets Government Bond Index (EMGBI) starting from September 2025. FTSE Russell made the announcement in the early hours of Wednesday.
“We welcome the inclusion of Indian government bonds (IGBs) in the FTSE EM bond index. With three index providers including IGBs in their indices, we believe the messaging around India continues to be very positive, and there is a glide path towards the bigger global indices – all in good time,” said Anita Mishra, head of markets and securities services at HSBC India. “While the FTSE inclusion is almost a year away and modest in total tracked volumes, it continues to be positive for the bond market along with a slew of other variables,” she said.
Local bond traders broadly expect foreign investment worth $3billion-$4 billion to flow to the Indian bond market due to the inclusion in the FTSE EMGBI.
As of the October 2024 index profiles, 32 rupee-denominated Indian government Fully Accessible Route (FAR) bonds ($473.8 billion in par amount outstanding) are projected to be eligible for the EMGBI, representing 9.35% of the index on a market value-weighted basis, FTSE Russell said in a note. FTSE’s decision comes after two other major global bond index providers – JP Morgan and Bloomberg – have included Indian sovereign debt in their indices.