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Bond market analysts remain upbeat on prospects of yields softening in long term

Analysts also expect demand supply balance in bond market to change significantly over next two years

A Staff Reporter Calcutta Published 08.04.24, 06:45 AM
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Bond market analysts remain upbeat on the prospects of yields softening in the long term amid anticipation of future rate cuts by the RBI and favourable demand-supply dynamics.

The 10-year G-Sec yields have declined from a high of 7.36 per cent on October 15, 2023, to 7.11 per cent as of April 5, 2024. With the RBI maintaining the repo rate at 6.5 per cent in the April monetary policy, the 10-year yield is expected to remain range bound between 7 per cent and 7.15 per cent before a rate cut possibility in the third quarter of 2024-25.


A fall in the interest rates makes bond prices rise as bond yields fall.

"RBI is expected to follow the US Federal Reserve in cutting rates provided monsoons are normal and commodity prices remain range bound. The 10-year yield is expected to trade in the band of 7-7.15 per cent levels as rate cut expectations are pushed to the second half of the fiscal," said Murthy Nagarajan, head-fixed income, Tata Asset Management.

"We expect bond yields to go down from current levels supported by falling inflation, potential rate cuts in India, favourable demand-supply dynamics and global bond index inclusion.

"Considering the strong case for long-term yields to decline over the next 1-2 years, we believe long-term government bonds will offer a rewarding opportunity," said Pankaj Pathak, senior fund manager — fixed income, Quantum AMC.

Analysts also expect the demand supply balance in the bond market to change significantly over the next two years.

"We believe that there would be a lot of inflows into the Indian bond market by large global investors. Even today investors are getting a 7 per cent G-Sec yield. Not only from the US, we are seeing inflows from Japan into Indian bond markets," said Vineet Agrawal, co-founder Jiraaf.

"We believe the interest rate will go down in a few quarters and along with strong inflow and demand the yield will come down," he said.

"Its crucial to recognise that the attractiveness of Indian bonds extends beyond the immediate context of rate adjustments or monetary policy shifts," said Deepak Sood, senior partner and head fixed income, Alpha Alternatives.

"Factors such as favourable supply-demand dynamics, commitment to fiscal prudence, prospects of sustained governance stability and increasing likelihood of a credit rating improvement collectively contribute to a conducive environment for the compression of bond yields," he said.

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