Anxious April

The yield on the old 10-year benchmark government security (G-sec; 7.18% GS 2033) opened April at 7.11% and closed at 7.20%, up 15 basis points (bps) from its March close of 7.05% and above CRISIL’s forecast range of 7.07-7.17%.

The first week started on a weak note, tracking a surge in US Treasury yields and increase in crude oil prices. Securities traded in a narrow price range until the outcome of the Reserve Bank of India’s Monetary Policy Committee (MPC) meet in April was known. The MPC kept the key repo rate unchanged at 6.50% for the seventh time in a row. In response, the old 10-year benchmark 7.18% GS 2033 closed at 7.12% and the new one (7.10 GS 2034) at 7.09%.

In the next week, too, bonds opened with a negative bias as the upswing in US Treasury yields and crude continued. Data released on April 12 showed that India’s Consumer Price Index (CPI)-based inflation for March printed at 4.85%, lower than the previous month’s 5.09%. However, US CPI inflation in March accelerated to 3.48% from the previous month’s 3.15%. The RBI announced the G-sec auction cut-off of the new 10-year and 15-year paper at 7.10% and 7.23%, respectively. Reacting to the US inflation data, the yield on the old 10-year benchmark closed at 7.18%, while that on the new one closed at 7.14%.

Yields continued the upward journey in the third week owing to foreign portfolio investor (FPI) outflows and worries over the global economy. Geopolitical tensions and apprehensions around the timing of rate cuts in the US also put pressure on sentiment. As a result, the old 10-year benchmark yield closed at 7.23% and the new one at 7.16%.

The fourth week began with a softening of yields, largely because of short covering. As the week progressed, yields hardened on short bets by traders, ahead of the G-sec auction. A decline in US Treasury yields and lower crude oil prices also kept market sentiment upbeat. Thus, the week ended on a positive note with the old benchmark paper closing at 7.20% and the new one at 7.16%, marking the first weekly decline in the new fiscal.