September skid

The yield on the 10-year benchmark government security (G-sec; 7.10% GS 2034) opened September at 6.88% and closed at 6.75%, down 11 basis points (bps) from its August close of 6.86% and within CRISIL’s forecast range of 6.75-6.85%.

The 10-year benchmark G-sec yield traded in a narrow range in the second week, ahead of the domestic Consumer Price Index (CPI) inflation print. A reduction in Treasury bill (T-bill) supply, combined with better weekly cut-offs, boosted market sentiments and increased trading volumes. Consequently, the yield on the 10-year benchmark G-sec fell below 6.80% for the first time since March 2022, closing the week at 6.79%.

During the third week, the 10-year benchmark G-sec yield traded flattish, though softening slightly due to a decline in UST yields. The Federal Open Market Committee (FOMC) lowered the federal funds rate by 50 bps to a range of 4.75-5%, marking the first cut in four years and signalling further easing before year-end. The US Federal Reserve (Fed) projects additional rate cuts of 50 bps in 2024 and 100 bps in 2025, according to its updated dot plot. However, the futures market expects a rate cut of 75 bps in 2024, with a toss-up between a 25 and 50 bps cut in November. The European Central Bank also reduced rates by 25 bps, underscoring the global trend of monetary policy easing. Profittaking and short bets led the 10-year benchmark G-sec to close the week at 6.76%.

In the last week, the 10-year benchmark G-sec traded in a narrow range, starting at 6.77%. Market sentiment remained upbeat due to optimism about the cut in gross borrowing amount. On September 26, the government announced plans to raise Rs 6.61 lakh crore in the second half of this fiscal through issuance of dated securities, including sovereign green bonds worth Rs 20,000 crore. This accounts for 47.2% of the total gross market borrowing target of Rs 14.01 lakh crore for the full fiscal, in line with expectations. To manage short-term funding needs, the government also plans to issue T-bills worth Rs 2,47,000 crore in the third quarter. The 10-year benchmark G-sec ended the month at 6.75%.