10-year G-SEC yield: Foreign banks dump $3 billion in G-SEC amid tensions in India-Parker

Mumbai: Foreign banks and major dealers dumped nearly $3 billion in Indian government securities on Thursday and Friday as tensions escalated in India-Pakistan. But traders expect they will return as geopolitical risks show signs of weekend cooling, which could drop 4-5 basis points on Tuesday.

Traders believe that the 10-year benchmark could reach nearly 6.32-6.34% after the recent border downgrade and ceasefire announcements.

They said the sudden sales last week were driven by concerns about wider military conflicts following a heightened cross-border strike, which triggered a rush to expose risky assets. The 10-year benchmark yield has soared nearly 10-12 basis points recently.

Despite the sharp move in G-SEC yields last week, this is not primarily due to the withdrawal of foreign investors, and traders are positioned as a response to geopolitical uncertainty but rather to the U.S. production movement. This caused a decrease in yields at the recent highs, about 6.44%, to the previous merger zone 6.32-6.34%.

Within a few days, global tips, especially the U.S. Treasury generated 70-80 basis points in a few days, also affected India’s fixed income market.
“The 10-year yield may temporarily cool down to 6.32-6.34% due to a ceasefire and location relaxation, but that’s just a knee move,” said Ashhish Vaidya, managing director and head of DBS Bank India DBS Bank India DBS Bank India Managing Director and Head, DBS Bank India. “The broader short-term tone remains cautious and upward pressure continues unless global yields, especially in the U.S., begin to relax meaningfully, which may provide a trend to make EM debt more attractive.”
The 10-year G-SEC yield was 6.3% on April 23, up 6.44% last weekend.
In the long run, if the RBI lowers the repurchase rate to 5.50%, experts say the yield could drop to 6%, providing investors with potential returns and additional returns of 6.40%-6.44%, higher than earlier estimates.

“There are already downgrades and ceasefires at the border, so I do expect bond yields to be around 4 basis points on Tuesday, and I expect the yield to close by about 6.33%,” said Mataprasad Pandey, vice president of Arete Capital Services. “I sent me an investment call when the yield rose to 6.44% on Thursday.

In the long run, Pandy said that assuming the RBI drops the rate to 5.50%, the yield could drop to 6%. In this case, investors with a yield of 6.40-6.44% will see more capital appreciation.