Global
- US yields remained elevated on bets of a 25 bps Fed rate hike post a pause in September.
- European yields to take direction from ECBs revision in growth, inflation forecasts, if any.
- Upside in UK gilt yields to remain capped amidst growing slack in economic activity.
- JGB bond yields to test 1% if inflation and wage growth remains elevated.
- Bond markets remain watchful of BOJ’s bond purchase announcement for Oct-Dec period on Sep 29.
Domestic
- 10-year bond yield rose to 5-month high in response to elevated inflation.
- Tightening banking system liquidity led to narrowing of bond yield spreads.
- Liquidity surplus shrank to a monthly average of Rs 1.1 lakh crore in August post RBI’s I-CRR move.
- Announcement of H2 FY24 borrowing calendar to be a key trigger for yields going ahead.
- RBI expected to maintain status quo in FY24 as inflation seen easing to average of 5.2% in Q4 FY24.
- Chances of RBI rate cuts have been postponed to next fiscal year.
- CD issuances pick pace on healthy credit demand, tightening liquidity.
- Net FPI flows moderated in August on uncertain domestic inflation outlook, higher US yields.
- Rupee weakened due to strong dollar, slowing FPI flows and rising crude oil prices.
- We expect the 10-year benchmark bond yield to trade within 7-7.2% by end-FY24.
