India’s 10-year bond yield to stay soft at 6.25%: BoB

Yield on India’s benchmark 10-year bonds will stay soft in July, according to Bank of Baroda (BoB) Research.

“India’s 10Y yield is expected to have a softening bias and likely to trade in the range of 6.25- 6.35% in the current month. The current degree of correction is on account of some expectation-driven pricing by traders led on anticipation that most of the frontloading of rate cut by RBI had already happened. However, the current MPC minutes have been dovish, hinting at further space being available if we look in terms of neutral interest rates,” wrote Dipanwita Mazumdar, economist at BoB Research, in her note. 

Apart from RBI’s anticipated front-loading of rate cuts, the outflow of foreign investments on account of low interest rate differential between India and the U.S. may have also contributed to the “stiffening of yield,” Ms. Mazumdar added. 

Domestic 10Y yield corrected in June after three consecutive months of fall, Ms. Mazumdar wrote . The paper traded between 6.25% and 6.37% in June compared with 6.24%-6.40% in the month before, with an increase in monthly volatility, despite RBI quickening the pace of rate cuts. Further, the change in stance to neutral has sparked anticipation that this might be data dependent.  “Further, some impact on 10Y yield was on account of the higher outflow in FAR securities at $1.2 billion and in debt VRR at $0.7 billion in June,” said Ms. Mazumdar.