- The recent surge in US Treasury yields, outflows of Foreign Portfolio Investors (FPI) from Indian bonds, and the rupee’s pressure have led to an increase in Indian government bond yields.
- Analysts predict that bond yields will stabilize and possibly drift lower due to the end of the global monetary tightening cycle and the expected interest rate cuts by the US Federal Reserve.
- Indian government bond yields remained flat on Tuesday, with the benchmark yield around 7.10%, while US peers also remained flat.
Indian government bond yields are expected to stabilize and potentially decrease due to the end of the global monetary tightening cycle and anticipated interest rate cuts by the US Federal Reserve.
Global Influence on Indian Bond Yields
Global cues continue to influence Indian markets, with Indian bonds reacting to these cues. Value buying has increased at higher yields, and with crude oil retracing lower from recent highs, bonds were well bid most of the week. The Government of India announced a buyback of short maturity government securities worth ₹40,000 crore, which is expected to increase the banking system liquidity.
Future Expectations for Indian Bond Yields
Analysts expect long bond yields in India to stabilize over the next few months after the sharp uptick over the course of the last month. They predict yields to drift lower over the course of the next year, with the benchmark 10-year bond yield expected to go towards 6.50% by Q3/Q4 of FY25.
Investor Recommendations
Investors are advised to increase allocation to Fixed Income at every uptick in yields. Funds with a duration of 6-7 years with predominant sovereign holdings are recommended for investors with medium to long-term investment horizons. Money Market Funds are suggested for investors with an investment horizon of 6-12 months.
Conclusion
Despite recent increases in Indian government bond yields due to global influences, analysts predict a stabilization and potential decrease in bond yields over the next year. Investors are advised to consider Fixed Income and Money Market Funds based on their investment horizons.
