"Bond yields rose due to aggressive rate hikes from the RBI, but we may not see major moves going into the next year as the cycle may be nearing the end," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership. However, the benchmark bond yield ended lower by one bps in the January-March quarter, registering a third straight quarterly dip as the bulk of the rise came in the April-June quarter. The RBI began its hiking cycle with an unscheduled policy meeting in May 2022, delivering a 40-bps hike. It then delivered three straight hikes of 50 bps each, one hike of 35 bps and one of 25 bps to take the aggregate quantum of hikes to 250 bps in the fiscal year. The U.S. Federal Reserve raised interest rate by 450 bps, which resulted in a large upmove in U.S. yields, further hurting sentiment for local bonds. The two-year and 10-year yields were higher by 185 bps and 120 bps, respectively, to trade at 4.14% and 3.54%. India's retail inflation stayed above the RBI's upper tolerance level of 6% for most of the year, forcing it to keep a tight leash on rates and withdraw liquidity.
Bond yields, especially on the shorter end, rose as banking system liquidity slipped into deficit for the first time in nearly four years this fiscal year, with the deficit widening to above 1 trillion rupees in March. The five-year bond yield nearly converged with the 10-year benchmark yield, while the 364-day T-bill yield briefly rose above the 10-year paper.
FY24 OUTLOOK Bond market participants expect the government bond yield curve to steepen in the new financial year, as more than half of the gross supply in April-September would be in the 14-year and above maturity papers.
India aims to gross borrow 8.88 trillion Indian rupees in the next six months, which is nearly 58% of the annual target of 15.43 trillion rupees.
Market participants also expect the central bank to opt for a prolonged pause after delivering a final 25 bps rate hike on April 6, which may also support demand for the shorter end.
Citi expects a dovish hike of 25 bps and a change in stance from 'withdrawal of accommodation' to 'neutral' by the RBI next week. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Movement in 10-year benchmark bon yield ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman)
