InvestorQ : Indian bond yields have fallen from 7% to 6.3% in a short span of time. What is the reason for this fall?
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Indian bond yields have fallen from 7% to 6.3% in a short span of time. What is the reason for this fall?

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1 year ago
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If you look at the bond yields from a slightly longer lens, then the bond yields have actually fallen from 8.3% in October 2018 to 6.3% in July 2019, which is a fall of nearly 200 basis points in 9 months. There are a number of reasons why the bond yields are falling so sharply in India.

· The US Fed has spoken about dovish rates and that has raised expectations of a rate cut by the Fed when it meets next on July 31st.

· The RBI is expected to cut rates in its August 2019 policy meet to give a boost to growth, which has been lagging for quite some time.

· The combination of inflation, IIP growth and weak exports has created a perfect case for RBI to cut rates. That has led to a sharp fall in bond yields.

· Global investors have started aggressively buying bonds and have infused nearly $2 billion into Indian bonds in July month. This spurt in demand is taking bond prices up and the bond yields down.

· Yields are also down because the government has proposed to raise $10-15 billion via Sovereign Dollar Bonds. That will reduce the pressure on local bond markets and that has also contributed to lower yields.

All these factors contributed to the sharp fall in yields. Of course, you need to wait and see if these low yields sustain.

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