Torpid February
 

The yield on the 10-year benchmark government security (G-sec) opened at 6.67% and closed at 6.72% in February, up 3 basis points (bps) from its January close of 6.69% and within Crisil’s forecast range of 6.65-6.75%.

The first week opened on a positive note, tracking an overnight decline in US Treasury yields. Additionally, likely buying by foreign investors and some ease in the banking system liquidity aided the bond prices. Expectations of a rate cut in the run-up to the Monetary Policy Committee (MPC) meeting supported short-term yields. As the week progressed, measures announced by the Reserve Bank of India (RBI) to infuse durable liquidity by using open market operation (OMO) purchases and 56-day variable repo rate (VRR) auction aided the gilts to some extent. As the week progressed, traders avoided placing aggressive bets following key events such as the Federal Open Market Committee (FOMC) meeting and the Union Budget presentation. The week ended with a rise in US Treasury yields, lower-than-expected cut-off at the weekly auction and the devolvement of Sovereign Green Bond 2034 at the weekly G-sec auction weighing on the bond prices. With this, the 10-year benchmark paper 6.79% GS 2034 closed at 6.70% compared with the previous week’s closing of 6.73%.

In the second week, domestic inflation data released showed that inflation based on the Consumer Price Index (CPI) decreased to 4.31% in January from 5.22% in December 2024, in line with market expectations. Traders avoided placing aggressive bets ahead of the RBI MPC meeting outcome announcement. Market sentiments turned negative as the MPC retained the policy stance at ‘neutral’ while cutting the policy rate by 25 bps, indicating a cautious approach to further rate cuts. The 10-year benchmark paper closed at 6.71% as compared with the previous week’s closing of 6.70%.

The third week opened on a tad negative note, following an overnight rise in US Treasury yields following President Donald Trump’s threat of imposing new tariffs on imports into the US. The RBI’s revision of the notified amount of OMO purchase auction to `40,000 crore from `20,000 crore supported gilt prices. For most of the week, domestic bonds traded in muted volumes and in a narrow price range amid mixed domestic and global cues. The 10-year benchmark paper closed at 6.71%.

The final week of the month opened on a positive note because of an overnight fall in US Treasury yields. Trade volumes remained muted as traders avoided placing aggressive bets until data on the domestic gross domestic product (GDP) was released. A weaker-than-expected cut-off at the weekly G-sec auction and an upward revision of domestic GDP growth in fiscal 2025 to 6.5% from 6.4% weighed on the bond prices. With this, the 10-year benchmark paper closed at 6.72% compared with the previous week’s closing of 6.71%.