Government bond yields moderated on Monday as the sentiment remained positive after JP Morgan added India to its emerging bond index, while dealers await FTSE Russell to make its decision on Wednesday.

With JP Morgan’s decision, expectations are growing for Bloomberg Global Aggregate Index including Indian securities.

If the two other index providers follow JP Morgan, there could be additional
inflows to the tune of $20 billion.

The 10-year benchmark 7.18 per cent 2033 bond on Monday touched 7.12 per cent during intra-day trades against the previous close of 7.15 per cent, before ending at 7.14 per cent.

Analysts said the yields on domestic government bonds are set to soften in the coming months.

Analysts at Citi said in a note that yields on 10-year G-Sec will soften to 6.80 per cent over the next few months. Jayesh Mehta, India country treasurer at Bank of America, said the yield will drop to 6.90-6.95 per cent.

A Kotak Securities report, however, said that the 10-year yield will be in the range of 7-7.15 per cent.

All eyes are now on FTSE Russell — which will review its emerging markets government bond index on September 28. The country has been on its watchlist since March 2021.

Kotak said it expects the dated yield curve to maintain a flattening to inverted bias. It expects an incremental demand of Rs 2-2.5 lakh crore from FPIs, which could open up space for corporate bond demand and lower overall rates.

Rupee dips

The rupee on Monday ended with losses of 21 paise against the dollar on rising crude oil prices and a stronger greenback overseas.

At the inter-bank forex markets, the domestic unit opened at 83.04 against the dollar as the US dollar index which measures the US currency against six other currencies rose.

The rupee ended at 83.14 against the dollar.

“Both rising crude price and the dollar index have consistently applied downward pressure on the rupee each time there was an attempt to rise above 82.75,’’ said Jateen Trivedi, VP research analyst at LKP Securities.