10-year Benchmark G-sec Yield Is Expected To Stay Range-bound: Crisil

In November, the 10-year benchmark government security yield is expected to stay range-bound, states a recent Crisil report. Oil prices, US Treasury yields and geopolitical tensions due to the Middle East conflict can put upward pressure on the yields, the report pointed out. Moreover, the Reserve Bank of India (RBI) hinted at the possibility of open market operations (OMO) sales to drain out surplus liquidity from the money market, the report highlights.

The yield on the new 10-year benchmark government security (G-sec; 7.18 per cent GS 2033) opened October at 7.23 per cent and closed at 7.35 per cent, up 14  basis points (bps) from its September closing of 7.21 per cent and outside Crisil’s forecast range of 7.23 per cent to 7.33 per cent.

In the first week, bonds traded largely with a negative bias due to a surge in US Treasury (UST) yields and crude oil prices. In addition, the Reserve Bank of India (RBI) hinted at OMO sales in future to manage liquidity in the market.

This led the yield on the 10-year benchmark G-sec to harden by 14 to 15 bps. The domestic 10-

year benchmark yield closed the week at 7.34 per cent. The second week started on a negative note, tracking a surge in crude oil prices amid geopolitical tensions in the Middle East and due to likely OMO sales.

India's retail inflation printed at a three-month low of 5.02 per cent in September on the back of softer vegetable prices. However, as the week progressed, the bond market witnessed a softening in yields due to a decline in UST yields. The 10-year benchmark yield slipped and closed the week at 7.32 per cent.

In the third week, UST yields touched 5 per cent for the first time since 200 following strong economic data, which renewed fears that US interest rates may stay elevated for longer. Crude oil prices also remained high amid concerns that the Middle East conflict will spread through the region and cause supply disruptions. The domestic benchmark yield closed the week at 7.36 per cent.

In the fourth week, a decline in UST yields supported domestic yields. In addition, bond yields softened further owing to better-than-expected cut-off prices at the weekly auction. The domestic 10-year benchmark yield closed the week at 7.35 per cent. Crisil expects India’s real GDP growth to slow to 6.0 per cent on-year in fiscal 2024 from 7.2 per cent the previous year, which will eventually decrease the yields in G-sec.

The current account deficit (CAD) has risen to 1.1 per cent of GDP in the first quarter of fiscal 2024 from 0.2 per cent of GDP in the previous quarter. Crisil expects the current account deficit (CAD) to average 1.8 per cent of GDP in fiscal 2024 compared with 2.0 per cent of GDP in fiscal 2023, affecting the yields.