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Economic Times
4 days ago
- Business
- Economic Times
RBI's 50 bps rate cut sparks short-term bond rally, long-term yields stay subdued. What's ahead?
India's short-term government bonds rallied after the RBI's surprise 50 bps rate cut, while long-term yields remained largely stable. The central bank's dovish tilt and liquidity infusion via a cumulative 100 bps CRR cut added to the positive momentum. Experts expect monetary transmission to improve, with shorter-end yields benefiting the most amid a data-dependent policy outlook. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads India's short-term government bonds rose on Friday, buoyed by the central bank's monetary policy announcements, including a larger-than-expected 50 basis point rate cut, which were viewed as particularly supportive for the shorter end of the yield curve. In contrast, the more liquid long-term bonds remained largely yield on India's benchmark 10-year government bond rose to 6.2200% around 1:25 pm on Friday, up from 6.1960% at Thursday's five-year 6.75% 2029 bond yield was at 5.8100%, after ending at 5.8514%. Bond yields were volatile after the RBI RBI lowered its key repo rate to 5.50%, marking its third consecutive cut, as subdued inflation gave policymakers room to shift their focus toward boosting economic central bank has lowered rates by a total of 100 basis points in 2025 so far, beginning with a 25 basis point cut in February. Additionally, the Central Bank reduced the CRR by a cumulative 100 bps in four equal tranches, adding almost INR 2.5 Lakh crore to banking system liquidity.'Larger than expected move on the Repo Rate, offset by the hardening of the policy stance, may be seen as a front-loading of future policy action. CRR, on the other hand, is a surprise for the market,' noted Churchil Bhatt, Executive Vice President - Investment at Kotak Mahindra Life Insurance has also moved its full-year inflation forecast lower to 3.7% from 4.0% while affirming its confidence in a robust growth trajectory.'Overall, we expect moderate steepening of the Government Bond yield curve, with shorter-end yields and spread assets benefitting from the surprise liquidity bonanza,' Bhatt believes that these policy actions will also accelerate monetary transmission, resulting in lower bank lending rates. Going forward, he expects to see a data-dependent approach to RBI, with most of the heavy lifting behind yields and RBI interest rates have an inverse relationship, meaning when the RBI cuts interest rates (like the 50 basis point repo rate cut in this case), bond yields, particularly on shorter-duration government bonds, typically is because new bonds will offer lower returns, making existing higher-yielding bonds more attractive, thereby driving up their prices and pushing yields down. Short-term yields are more directly influenced by such rate cuts and tend to respond read: RBI's bazooka sends Sensex, Nifty soaring. What does it mean for stock market investors However, long-term yields, like the 10-year benchmark, are typically shaped by broader factors such as inflation expectations, fiscal outlook, and economic growth.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
Time of India
4 days ago
- Business
- Time of India
RBI's 50 bps rate cut sparks short-term bond rally, long-term yields stay subdued. What's ahead?
India's short-term government bonds rose on Friday, buoyed by the central bank's monetary policy announcements, including a larger-than-expected 50 basis point rate cut, which were viewed as particularly supportive for the shorter end of the yield curve. In contrast, the more liquid long-term bonds remained largely muted. The yield on India's benchmark 10-year government bond rose to 6.2200% around 1:25 pm on Friday, up from 6.1960% at Thursday's close. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Villa For Sale in Dubai Might Surprise You Villas in Dubai | Search ads Learn More Undo The five-year 6.75% 2029 bond yield was at 5.8100%, after ending at 5.8514%. Bond yields were volatile after the RBI announcement. Bonds Corner Powered By RBI's 50 bps rate cut sparks short-term bond rally, long-term yields stay subdued. What's ahead? India's short-term government bonds rallied after the RBI's surprise 50 bps rate cut, while long-term yields remained largely stable. The central bank's dovish tilt and liquidity infusion via a cumulative 100 bps CRR cut added to the positive momentum. Experts expect monetary transmission to improve, with shorter-end yields benefiting the most amid a data-dependent policy outlook. RBI accepts 95% of bond buyback ahead of monetary policy review India plans increased bond buybacks and switches to secure sovereign rating upgrades India bond traders suggest borrowing tweak to bring down long-term yields, sources say India's favoured 5-year bond trade loses steam with rate cuts priced in, fund managers say Browse all Bonds News with The RBI lowered its key repo rate to 5.50%, marking its third consecutive cut, as subdued inflation gave policymakers room to shift their focus toward boosting economic growth. The central bank has lowered rates by a total of 100 basis points in 2025 so far, beginning with a 25 basis point cut in February. Additionally, the Central Bank reduced the CRR by a cumulative 100 bps in four equal tranches, adding almost INR 2.5 Lakh crore to banking system liquidity. Live Events 'Larger than expected move on the Repo Rate, offset by the hardening of the policy stance, may be seen as a front-loading of future policy action. CRR, on the other hand, is a surprise for the market,' noted Churchil Bhatt, Executive Vice President - Investment at Kotak Mahindra Life Insurance Company. RBI has also moved its full-year inflation forecast lower to 3.7% from 4.0% while affirming its confidence in a robust growth trajectory. 'Overall, we expect moderate steepening of the Government Bond yield curve, with shorter-end yields and spread assets benefitting from the surprise liquidity bonanza,' Bhatt added. He believes that these policy actions will also accelerate monetary transmission, resulting in lower bank lending rates. Going forward, he expects to see a data-dependent approach to RBI, with most of the heavy lifting behind us. Bond yields and RBI interest rates have an inverse relationship, meaning when the RBI cuts interest rates (like the 50 basis point repo rate cut in this case), bond yields, particularly on shorter-duration government bonds, typically fall. This is because new bonds will offer lower returns, making existing higher-yielding bonds more attractive, thereby driving up their prices and pushing yields down. Short-term yields are more directly influenced by such rate cuts and tend to respond quickly. Also read: RBI's bazooka sends Sensex, Nifty soaring. What does it mean for stock market investors However, long-term yields, like the 10-year benchmark, are typically shaped by broader factors such as inflation expectations, fiscal outlook, and economic growth.
Mint
30-04-2025
- Business
- Mint
Indian Insurers Plan a $41 Billion Trade Switch to Bond Forwards
(Bloomberg) -- Follow Bloomberg India on WhatsApp for exclusive content and analysis on what billionaires, businesses and markets are doing. Sign up here. India's insurance companies are ready to embrace bond forwards agreements that start trading on Friday, the latest step to enhance the liquidity and sophistication of the nation's $1.3 trillion government debt market. Insurance companies are in talks with the authorities to convert about 3.5 trillion rupees ($41 billion) worth of rates derivative contracts into bond forwards, people familiar with the matter said. Such contracts offer investors the opportunity to own the securities, rather than just receiving a cash settlement, giving insurers greater certainty in managing interest rate risks. A key point of discussion between insurers and regulators is the treatment of existing contracts and the complex documentation processes required for the migration, the people said, who declined to be identified as the talks are private. The shift from FRAs, as the rate derivatives are called, will happen gradually, they said. Cash-rich insurers are driving demand for diverse investments and hedging options as the nation's growing wealth means more families are funneling cash toward financial markets. 'Over time, the insurance industry is likely to transition away from FRAs in favor of bond forwards,' said Churchil Bhatt, executive vice president for investments at Kotak Mahindra Life Insurance Co. They provide a hedge against fluctuations in yields and also offer investors the opportunity to get delivery of bonds, he said. The Reserve Bank of India and the Insurance Regulatory and Development Authority of India didn't respond to emails and calls seeking comment. The bond forward product will cater to the continuing demand for long-term securities from investors like insurance companies, said Gopal Tripathi, head of treasury at Jana Small Finance Bank Ltd. Bond forwards allow investors to buy debt at a future date at an agreed price, giving them a potent tool to manage interest rate risks. Insurance firms, who need predictable cash flows to match future payouts to policyholders, are expected to benefit the most. Banks can undertake long positions without any limits and covered short positions through bond forwards only for hedging, the Reserve Bank of India said in its guidelines. More stories like this are available on First Published: 30 Apr 2025, 08:53 AM IST
