The 10-year Indian bond yield witnessed a rise of five basis points to 6.59 per cent, the highest since January 2020, recording a two-year high. Although, there was a fall in demand for bonds at recent auctions amidst growing concern over the Reserve Bank Of India’s consistent sales of the nation’s debt in the secondary market.
There was a spike when various underwriters bought nearly 44 billion rupees ($593 million) of 60 billion rupees of the 2026 debt for sale on Friday. Even during the auction in July-end, underwriters rescued Indian bonds.
“The central bank mentioned that the market isn’t getting any help in absorbing longer-duration bonds, rather it is adding to debt supply in the market through its permanent liquidity operations”, Bloomberg quoted Suyash Choudhary, head of fixed income at IDFC Asset Management Ltd. There’s a risk that the market may lose appetite for debt without intervention, he said to Bloomberg.
The RBI has reduced the support for the bond market and in turn, it is exacerbating stress on sovereign bonds resulting from the rise in Treasury yields. There is also a growing risk of additional government spending amid the latest wave of Covid infections and there is a probability that it could further dampen the demand for Indian bonds, reported Bloomberg.
India sold 30 per cent of the 240 billion rupees issuance on Dec. 31 as RBI chose not to give in to investor demand for higher yields. RBI Governor Shaktikanta Das has clarified several times that he is comfortable with an orderly evolution of the yield curve but that the central bank will step in to prevent sharp spikes.
The domestic markets and the rupee have been witnessing a steady rise since the onset of the new year. Although there have been mixed cues from global markets, the equity benchmarks got stronger ground as investors accumulated energy, infra and IT stocks.
The bond yields in the secondary market are back-calculated depending on bond prices. Yields witness a downside when bond prices rise and vice versa. In other words, investors sell their bond holdings at a time, they feel that they are not getting satisfactory returns from the existing yield and buy bonds when they are willing to accept lower yields.
