MUMBAI: Pricing for the soon-to-be benchmark new 10-year government bond will continue as market conditions continue to rise due to favorable bond demand-supply dynamics, although concerns over the inflationary impact of the West Asian wars may prevent yields from falling significantly. It suggests a sense of security. For the remainder of 2024.
On Friday, the Reserve Bank of India (RBI) held the first auction for new government bonds due in 2034. The coupon (interest rate) of the new government bonds was set at 6.79%. At the time of the auction, the existing 10-year bond yield was trading at 6.80%, suggesting a 1 basis point premium to the new bond yield. The existing 10-year bond with a coupon rate of 7.10% closed at 6.83% on Friday.
The decline in the surface interest rate of the new bond indicates a change in the outlook on interest rates and bond supply and demand since April, when the old bond was introduced. Corporate bond prices are determined based on sovereign debt, so the yield on government bonds determines the cost of borrowing for the economy as a whole. The 10-year bond is the benchmark for pricing the sovereign yield curve.
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“The basic story for gold prices this year is one of supply and demand.While expectations are rising, mainly due to the RBI’s change in stance, the story remains one of very strong demand from domestic investors. ,Additionally, we are likely to see around $20 billion in FPI buying this year as well,” said Shailendra Jhingan, MD, CEO, ICICI Securities Primary Dealer.
On June 28, the process of incorporating Indian government bonds into the JPMorgan index began, with large amounts of foreign funds flowing into the domestic debt. More than $7.5 billion worth of FPI investments flowed into index-eligible bonds from June 27 to October 3, according to clearing house data. Additionally, India’s headline retail inflation has fallen sharply since April, with print at 3.65% in August, below the RBI’s target of 4%.
On the domestic side, insurance companies and pension funds have shown strong demand for long-term government bonds as a means of hedging their liabilities, and demand from these companies is expected to remain resilient given the increasing penetration of finance into the economy. Ru. However, Mr. Jing’an said: Amid rising tensions in West Asia, concerns were growing over disruptions to oil supplies from the region. He said the inflation risks arising from this scenario would lead to a shift from the current stance of withdrawing easing to a neutral stance when the central bank’s Monetary Policy Committee issues a detailed policy statement on October 9. He said that this could be hindered. “I think it’s going to stay at $6.75. The 10-year yield is currently in the 6.85% range.”
The sudden escalation in the West Asian conflict caused a sudden readjustment in views on domestic bonds, bringing a sharp end to the phase of falling yields.
“6.65% may have been conceivable before the geopolitical upheaval, but now we don’t think that is sustainable,” said Vikas Goel, MD, CEO of PNB Gilts. .
