Indian government bond yields tumbled on Thursday morning, reaching their lowest point in nearly two and a half years, following a dovish statement from the Federal Reserve. The benchmark 10-year yield dipped to 6.9045%, its lowest level since April 5, 2022, before settling at 6.9137% by 10:00 a.m. IST.
The decline in Indian yields mirrored a similar trend in the US, where yields fell on Wednesday after Federal Reserve Chair Jerome Powell indicated a possible rate cut at the September meeting. Powell cited easing price pressures as a key factor in considering a reduction in interest rates. The 10-year US Treasury bond yield dropped to 4.03%, its lowest point in six months.
Market analysts have interpreted these developments as a sign of a more accommodative stance from the Fed, prompting investors to price in a total of 75 basis points worth of rate cuts over the remaining three policy meetings of 2024.
In India, traders are keeping a close eye on upcoming bond issuance, with the government scheduled to sell â¹220 billion (approximately £2.1 billion) worth of bonds on Friday. This includes the first auction of a new 30-year bond since the Reserve Bank of India reinstated investment restrictions on 14- and 30-year bonds. This policy change, which foreign investors have labelled a "flip-flop", may require them to recalibrate their investment strategies. However, a senior government source assured Reuters that there are no plans to reimpose foreign investor limits on new issuances of 5-, 7-, and 10-year bonds.
These developments are particularly significant given the record-breaking foreign investor purchases in July, with over a quarter of these investments directed towards 10-year bonds. This influx of foreign capital has contributed to the downward pressure on Indian bond yields.
The coming days will be crucial for gauging the full impact of these events on the Indian bond market, with traders monitoring the response to the upcoming bond sale and the potential implications of the Fed's dovish stance on global investment flows.
