Bond yields slide as reports tout progress in global listing of Indian debt

Government bond yields fell sharply on Friday after media reports said progress had been made in talks for domestic sovereign debt to be included in the JP Morgan bond index.

The Reserve Bank of India’s (RBI’s) decision to cancel a portion of Friday’s primary auction of bonds worth Rs 32,000 crore also bolstered the appetite for government debt as traders cheered the lack of fresh supply hitting the market.

Yield on the 10-year benchmark paper fell seven basis points to close at 7.22 per cent on Friday. Bond prices and yields move inversely. A fall of one basis point on the 10-year bond yield corresponds to a rise in price of roughly seven paise.

“The key trigger was a report by the Financial Times saying that talks had gone forward for listing of (India’s) bonds in the JP Morgan index,” Naveen Singh, head of trading at ICICI Securities Primary Dealership, said.

“It is still not a done deal but it seems now that talks could be progressing between the investors and the index providers. There is a global push as investors move away from Russia and seek alternatives to China,” he said.

Earlier this month, Goldman Sachs released a note making a renewed case for inclusion of domestic government debt in a global bond index, saying that such a move could lead to around 30 billion dollars of passive inflows helping India to finance its fiscal and current account deficit.

On Friday, the RBI did not accept any bids for an auction of floating rate bonds worth Rs 4,000 crore. The total auction, including sales of four bonds was for a notified amount of Rs 32,000 crore. The RBI, which is the government’s debt manager, has of late signalled its discomfort with investors demanding high yields for floating rate papers at primary auctions. The central bank has been devolving floating rate papers on the books of primary dealers and on occasion cancelling such bond sales.

Floating rate bonds have lost favour with bond market participants as large supply of these securities by the government have resulted in a sharp fall in their price.