The domestic government bond market has remained resilient amid uncertainty in the global markets because of optimism regarding the inclusion of bonds in international indices, dealers said.
Even if the yield on the benchmark 10-year government bond rose by 4 basis points to settle at 7.21 per cent on Monday, traders believe the yield should remain below the psychologically crucial 7.25 per cent mark, given the robust demand at the current yield level.
The yield on the benchmark 10-year bond remained flat in August and moved in a narrow range throughout the month.
“The overall sentiment is weak, but the yields are not going up because there is optimism regarding the inclusion of bonds in international indices,” a dealer at a private bank said. “We are witnessing paying in the overnight index swap (OIS) tracking the US yields and crude, but people are going long (buying) on bonds,” he added.
The momentum surrounding the potential inclusion of Indian government bonds in global bond indices gained traction following the release of a report from an inter-departmental group within the Reserve Bank of India (RBI) in August. The report underlined that the benefits derived from incorporating government bonds into global indices outweigh the associated risks.
In 2022, prominent index providers, including JP Morgan and FTSE Russel, maintained their interest in Indian government bonds by retaining them within their watch lists. A review is due by the end of the month.
The positive sentiment among traders is also because of the view that the Reserve Bank of India might keep the repo rate unchanged in spite of rising inflation and may stick to other measures like the incremental cash reserve ratio (ICRR) to suck out excess liquidity from the system, dealers said.
“The US market has been very uncertain. The market is divided on whether the US Federal Reserve will hike rates or not. But our market is quite certain in that manner; the only uncertainty is the monsoon,” a dealer at a state-owned bank said. “Our market should slowly decouple from the US market,” he added.
First Published: Sep 04 2023 | 8:17 PM IST