Indications that the US Fed will cut interest rates in 2024, softer crude oil prices, and the possibility of the RBI changing its monetary policy stance to “neutral” from “withdrawal of accommodation” are fuelling a rally in the Government Securities (G-Sec) market, with yields thawing over 20 basis points from the recent peak in October 2023.
The rally in the secondary market also got reflected at the Friday weekly auction of G-Secs, with the 10-year benchmark G-Sec (coupon: 7.18 per cent) getting auctioned at a yield of 7.1897 per cent, about 10 basis points (bps) lower than the cutoff (7.28 per cent) at the previous (December 1st) auction.
In the secondary market, the yield of the aforementioned paper thawed about 3 bps to close at 7.16 per cent (previous close: 7.1969 per cent), with its price rising about 24 paise to close at ₹100.10 (₹99.87). On Thursday, the yield of this paper declined 6 bps, and its price rose by 42 paise.
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In the last two days, the yield of this paper has fallen 9 bps, and its price has risen 66 paise. Bond yields and prices are inversely related and move in opposite directions.
‘Fair enough’
“The US 10-year Treasury yield has fallen about 110 bps from 5 per cent to 3.90 per cent. Compared to that, our 10-year has declined by about 20 bps, which is fair enough.
“The US Fed has signalled a 75 bps cut in 2024. The reversal in the Fed Funds rate is getting priced in the Treasury yields there. Market players feel that RBI may also follow the Fed and change its monetary policy stance and start looking at rate cuts down the line,” said Gopal Tripathi, President and Head, Treasury and Capital Markets, Jana Small Finance Bank.
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Nuvama Wealth Management, in a report, said the 10-year benchmark yield opened the day flat at 7.20 per cent but fell to 7.15 per cent in the afternoon on better auction results and a respite around global rates.
Tripathi expects the yield of the 10-year G-Sec to further soften by about 10 basis points.