Yields had fallen to 6.14% as soon as the RBI announced a larger-than-expected cut in repo rate of 50 basis points to 5.50%, but hardened on account of a change in policy stance to neutral from accommodative, thus hinting that the easing cycle is nearing an end, traders said.
The difference between the 10-year yields of the US and India, which had widened briefly, stood nearly unchanged at about 2%. The 10-year US bond was trading at 4.30% yield.
Bond Street witnessed a volatile trading day. The 10-year benchmark security yields increased. This happened despite the Reserve Bank of India’s repo rate cut. The change in the central bank’s policy stance impacted the yields. Experts predict the 10-year yield to stabilize. Some anticipate further rate cuts later in the year. The five-year bond yield experienced a slight decrease.
“The change in stance was a damper, and hence yields went up. Now, everything that was factored in by the market has happened and I expect the 10-year yield to settle between 6.20% and 6.40%,” said Gopal Tripathi, head of treasury at Jana Small Finance Bank.
Earlier expectations of yields moving below 6% now seem distant, traders said. “I don’t see the yield meaningfully going below 6%,” said Anshul Chandak, head of treasury at RBL Bank.
In the shorter tenure securities, yields eased by a few basis points. The yield of the five-year bond maturing in 2029 ended at 5.81%, down three basis points from the previous close.”I expect yields in the 2-3 year maturity to ease to 5.75%, while the far end of the curve will settle at around 6.30% levels,” said Rajeev Pawar, head of treasury at Ujjivan SFBWhile most economists believe that the rate of 5.50% will be held in this calendar year, ANZ Banking Group expects the RBI to cut again in October, while Nomura expects a rate by 25 bps each in October and December.
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