Indian bonds trade flat ahead of RBI policy meet

The Indian 10-year bond yield is unchanged on Thursday after snapping a long rally as the RBI announced on Wednesday that they would allow foreign investors to buy up to Rs. 27,500 crore ($4.14 billion) in additional sovereign debt next month as part of its plan to gradually raise debt investment limits and was also followed by the dovish remark from Fed Chair Yelen on Tuesday. The 10-year bonds yield remained unchanged at 7.49 pct on Thursday and 3-year bonds yield stood at 7.43 pct.

The fall in Indian bond yields is likely to accelerate as market is expecting a 25bps cut in the next policy meeting on next Tuesday. Moreover, pressure on the central bank is mounting for a rate cut, especially after the government stuck to the budget deficit target of 3.5% of GDP for FY17.

This is consistent with the assessment that recent Indian economic data have improved a bit -CPI inflation moderated to 5.2% y/y in February from 5.7% y/y in January. However, given that service sector inflation remains high, it will be important to assess the tone of the monetary policy statement, as we believe that there are upside risks to the RBI's FY17 inflation target of 5%.

We foresee that the RBI will primarily focus on the domestic liquidity situation. In the recent week, systemic liquidity has tightened considerably due to the government holding back on spending and maintaining large cash balances with the RBI.

India 10-Year Bond Yield Technical Analysis (Daily)

Summary:   STRONG SELL

Moving Averages:  STRONG SELL 

Technical Indicators: STRONG SELL

Pivot Points:

Technical Indicators: