Forward of the Reserve Financial institution of India’s financial coverage assessment on April 9 and US President Donald Trump’s new tariff coverage, India’s benchmark 10-year bond yields on Wednesday fell sharply by 9 foundation factors (bps) to six.49 per cent on a year-on-year after the central financial institution introduced it might purchase Rs 80,000 crore price of bonds in April.
When bond yield — the return an investor can count on to earn till maturity — falls, bond costs go up. Whereas a decline in bond yields typically means that markets predict decrease rates of interest sooner or later, it doesn’t essentially assure or result in a fall in rates of interest within the close to future.
Cues from US bond yields
Intently following the trajectory of US bond yields, Indian bond yields have fallen 24 bps since March, after the RBI reduce the repo fee by 25 bps within the February coverage assessment. For the monetary 12 months 2024-25, the 10-year yield has plunged 62 bps up to now, its largest drop in 5 years.
The ten-year US Treasury notes’ yield decreased to 4.15 per cent on April 1 and to 4.12 per cent on April 2 morning, marking the bottom degree since December 6, 2024. This decline is attributed to traders in search of safer property forward of Trump’s anticipated tariff announcement on Wednesday.
Indian banking sector’s improved liquidity
The comfy liquidity scenario as seen by a slight deficit final week has ensured that India’s bond yields have come down, mentioned an analyst. The cut-offs for all of the three Treasury payments have come all the way down to nearly the identical at 6.30 per cent. The ten-year bond yield is prone to go down additional relying on the state of liquidity.
“Two issues must be thought of right here. First there can be three variable fee repo (VRRs) maturing within the subsequent couple of days until April 7 which might be broadly round Rs 1.81 lakh crore. Presently there are giant deployments within the SDF which ought to counter the identical,” mentioned Madan Sabnavis, chief economist, Financial institution of Baroda. Additional, the RBI has proven preparedness by asserting 4 open market operations (OMOs) this month for Rs 20,000 crore every. The VRR public sale on Wednesday has lower than the notified quantity of Rs 25,000 crore. “It appears to be like like this could be managed properly by the RBI by the mix of OMOs and VRR auctions,” he mentioned.
What to anticipate from RBI financial coverage assessment
The second issue is that the RBI’s financial coverage is developing. There may be hypothesis of varied choices being applied this time: a reduce in Money Reserve Ratio (CRR), change in stance to accommodative, and a 25-50 bps reduce in repo fee. “Nonetheless, we consider that 25 bps can be extra seemingly with stance in all probability additionally being modified,” Sabnavis mentioned.
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Banks are but to vary their deposit charges given the sources problem in direction of the top of March. Any change might be gradual. That is additionally the time when there might be much less ebullient demand for credit score and therefore there might be time to align charges on either side by banks.
Through the quarter up to now, the RBI has injected round Rs 5.5 lakh crore of sturdy liquidity into the banking system by a mixture of OMO purchases, longer-duration VRR auctions and foreign exchange swaps. The liquidity situation is predicted to be optimistic going ahead, Tata Mutual Fund mentioned in a report.
The CPI-based inflation for the month of February remained on the ranges of three.61 per cent, placing the RBI in a consolation zone on its repo fee reduce plan. Corresponding inflation fee for rural and concrete is 4.64 per cent and three.87 per cent, respectively. The speed of inflation primarily based on WPI Meals Index decreased from 5.97 per cent in January 2025 to three.75 per cent in February 2025.
