Indian bond yields have remained stable despite a decline in US Treasury yields, as the supply of Indian government securities outweighed demand. According to market sources, the yield on the 10-year government bond (oil) remained steady at 6.45% on Friday, March 4, 2023, as the Indian government issued a higher-than-expected amount of new debt to meet its fiscal deficit target.
Indian bond yields have been less affected by the recent decline in US Treasury yields, which fell by 2-3 basis points to around 1.7% in the 10-year and 2-year segments. This is because the Indian government’s supply of government securities has increased significantly, resulting in a supply glut that has kept yields firm.
According to data from the Indian central bank, the government issued around 1.3 trillion rupees (approximately $18 billion) in new debt in the February-March quarter, exceeding market expectations. This has put pressure on bond prices, causing yields to stay high.
Analysts attributed the stability in Indian bond yields to the supply dynamics, citing the overshooting of the government’s bond issuance plan. “The oversupply has absorbed the decline in global yields, keeping Indian bond yields steady,” said analysts at Kotak Mahindra Capital Co. “The market is factoring in the high supply, which is more important than the global developments in this case.”
The Indian government has been raising funds to meet its fiscal deficit target of 4.5% of GDP, which is a significant portion of the country’s annual budget. The government’s fiscal discipline efforts have been under scrutiny, and the recent bond issuance has been seen as a step to meet these targets.
In the short to medium term, Indian bonds are expected to continue to be influenced by supply and demand dynamics, analysts said. “The government’s supply will continue to be a key driver of yields, and the market will need to find a balance between supply and demand,” added analysts at Axis Capital.
In the long term, Indian bond yields are expected to be influenced by inflation, economic growth, and the global economy. As India’s economy grows, the demand for bonds is expected to increase, which could lead to a decline in yields. However, the upcoming general elections and the party formation of the future government will also be important factors to watch.