December dash

The yield on the 10-year benchmark government security (G-sec; 7.18% GS 2033) opened December at 7.29% and closed at 7.18%, down 10 basis point (bps) from its November close of 7.28% and below CRISIL’s forecast range of 7.23-7.33%.

The first week began with Indian bond yields easing, following a decline in US Treasury yields and crude oil prices. The 10-year domestic paper plummeted to a 7.24% low. Volumes remained subdued ahead of the Monetary Policy Committee’s (MPC’s) meeting outcome release on Friday. However, as the week progressed, bond yields strengthened, tracking higher US Treasury yields and crude prices, despite being weighed down by lower cut-offs in the weekly auction. The 10-year benchmark G-sec closed the week at 7.27%.

In the second week, yields eased, again, tracking a decline in US Treasury yields. The 10-year Treasury yield fell below 4% for the first time since August as the Federal Open Market Committee (FOMC) kept the federal fund rate unchanged at 5.25%-5.50% and indicated a cumulative 75 bps rate cut in 2024, followed by a 100 bpsreduction in 2025. The yield eased 31 bps to close the week at 3.91%. The announcement of liquidity infusion through a seven-day variable rate repo (VRR) auction supported the bullish momentum. The Reserve Bank of India (RBI) conducted a VRR auction on December 15 (Friday) for a notified amount of Rs 1 lakh crore in view of likely outflows from the banking system on account of advance tax and Goods and Services Tax (GST) payments. The 10-year benchmark paper closed the week at 7.16%.

During the following weeks, bonds traded largely in a narrow price range, with market participants exercising caution ahead of the release of MPC’s meeting minutes and US Personal Consumption Expenditures (PCE) price index data. Crude prices hovered below $80/bbl amid Angola’s decision to exit the Organization of the Petroleum Exporting Countries and higher crude output. RBI conducted a seven-day VRR auction on Friday for a notified amount of Rs 1.75 lakh crore at a weighted average rate of 6.70%. The 10-year benchmark G-sec closed the week at 7.19%.

In the week ended December 29, 2023, bonds traded in a narrow price range owing to lack of significant domestic and global cues. Crude prices declined as well, closing at $77.07/bbl on lower disruptions in seaborne transportation through the Red Sea. The 10-year benchmark paper closed the month at 7.18%.