January Jog

The yield on the 10-year benchmark government security (G-sec; 7.18% GS 2033) opened January at 7.20% and closed at 7.14%, down 4 basis points (bps) from its December close of 7.18% and below CRISIL’s forecast range of 7.16-7.26%.

In the first two weeks of January, the 10-year domestic paper traded between 7.18% and 7.20%. Yields soared to a high of 7.24% following the rise in United States (US) Treasury yields and crude oil prices. However, the proposal by Bloomberg to include Indian government bonds in the Emerging Markets Local Currency Index kept market sentiment upbeat and yields low. The 10-year benchmark paper closed mid-month at 7.18%.

The second half of the month turned bullish due to lower US Treasury yields and lower-than-expected inflation print for December 2023, which stood at 5.7%, leading to a spike in bond prices. Furthermore, strong buying support from mutual funds and foreign banks supported the yields, and the month closed at 7.14%.

Market sentiment remained upbeat after the announcement of lower fiscal deficit, and lower-than-expected gross and net borrowings for fiscal 2025 in the interim budget, with a hint at inflation and interest rates being under control. The same was highlighted in the Reserve Bank of India’s Monetary Policy on February 8, which kept the repo rate under the liquidity adjustment facility unchanged at 6.50%. A clear emphasis on withdrawal of accommodation to ensure alignment of inflation while supporting growth will keep the yields anchored going forward.