RBI’s easing optimism likely to affect Indian bond yields 

The Reserve Bank of India is likely to go for a 50 basis points rate cut next fiscal year and out of this 25 bps cut may be affected in the policy review meet next month amid slackening economic recovery, which could affect India bonds yield in the near future.

Yesterday, Indian bonds 10-year yield tumbled down to the lowest since July 2013 after the government’s decision to cut rates on small savings plans, which were seen paving the way for the central bank to further ease monetary policy. Meanwhile, the benchmark 10-year bond rose 1bps at the close on Wednesday to 7.51% from the previous closing of Tuesday. 

India’s debt, stock, and currency market will remain closed on Thursday and Friday for public holidays. Therefore, trading activity is expected to resume from Monday.

According to prices from the RBI’s trading system, the India’s benchmark 10 year bond yield dropped 3bps to 7.49%, headed for the lowest close for a benchmark 10-year note since July 2013.

“The RBI is widely-expected to lower benchmark rates by 25bps on April 5, helped by easing inflation, soft production numbers and the government’s move to adhere to fiscal targets.” , said Radhika Rao, an economist at DBS Bank Ltd. In Singapore.

In addition, we foresee that a rally in India's bond market could have short-life as investors brace for as much as $157 billion in sovereign debt sales over the next year, including from states financing a big bailout of electricity utilities.