Positive outlook on Indian Government Bonds

Analysts have a Positive outlook on Indian Government Bonds (IGBs), and hold the long 5Y IGB trade recommendation (entry: 8.04%; current: 8.00%; target: 7.65%; stoploss: 8.25%). The Positive outlook is underpinned by attractive valuations, reduced long positions by domestic investors, and favourable supply dynamics in June, says Societe Generale. 

With the 5Y IGB yield c.75bps higher than the repo rate, the carry in being long 5Y IGBs is attractive, and should limit further sell-off in IGBs. Since the Reserve Bank of India's (RBI's) 2 June monetary policy announcement, IGB yields are c.20bps higher and domestic investor positioning in long IGBs and received OIS is lighter. Societe Generale expects, reinvestment demand from c.INR 692bn worth of IGB redemptions in June to support the short end of the IGB curve.