Budget done, over to RBI: Bond traders bet on dovish pivot to extend rally
Yields slid to a seven-month low last week after New Delhi unveiled a borrowing plan that was below market estimates. The move has made a case for Shaktikanta Das to shift from the withdrawal of accommodation to a neutral stance in its February 8 meeting.
- Feb 5, 2024,
- Updated Feb 5, 2024 7:19 AM IST
A fiscally prudent Budget may prompt the RBI central bank to take a dovish monetary policy tilt and extend the best rally in more than year, bond traders are hoping.
Yields slid to a seven-month low last week after New Delhi unveiled a borrowing plan that was below market estimates. The move has made a case for Shaktikanta Das to shift from the withdrawal of accommodation to a neutral stance in its February 8 meeting.
“The fiscal compression will provide much comfort to RBI on attainment of its inflation target,” Suyash Choudhary, head of fixed income at Bandhan Mutual Fund, told Bloomberg. The central bank has little reason to delay easing its liquidity stance, given that inflation has been below its latest forecast, he added.
Kotak Mahindra Bank Ltd. expects India’s 10—year bond yield to fall to as low as 6.70% in the fiscal year starting April, while Barclays sees it dropping to 6.80%, from Friday’s close of 7.06%.
Indian bonds have rallied over the past three months, fueled by overseas inflows ahead of global index inclusion starting June. The 10-year yields are down by about 30 basis points since the end of October. They fell by 12 basis points last week, the most since Nov. 2022, after the prudent budget.
Traders are optimistic as lower borrowings will make it easier for the market to absorb supply. That’s a plus in a year when inclusion of India’s debt in JPMorgan Chase & Co’s emerging market bond index is expected to lure large inflows.
A fiscally prudent Budget may prompt the RBI central bank to take a dovish monetary policy tilt and extend the best rally in more than year, bond traders are hoping.
Yields slid to a seven-month low last week after New Delhi unveiled a borrowing plan that was below market estimates. The move has made a case for Shaktikanta Das to shift from the withdrawal of accommodation to a neutral stance in its February 8 meeting.
“The fiscal compression will provide much comfort to RBI on attainment of its inflation target,” Suyash Choudhary, head of fixed income at Bandhan Mutual Fund, told Bloomberg. The central bank has little reason to delay easing its liquidity stance, given that inflation has been below its latest forecast, he added.
Kotak Mahindra Bank Ltd. expects India’s 10—year bond yield to fall to as low as 6.70% in the fiscal year starting April, while Barclays sees it dropping to 6.80%, from Friday’s close of 7.06%.
Indian bonds have rallied over the past three months, fueled by overseas inflows ahead of global index inclusion starting June. The 10-year yields are down by about 30 basis points since the end of October. They fell by 12 basis points last week, the most since Nov. 2022, after the prudent budget.
Traders are optimistic as lower borrowings will make it easier for the market to absorb supply. That’s a plus in a year when inclusion of India’s debt in JPMorgan Chase & Co’s emerging market bond index is expected to lure large inflows.