India bonds see best quarter in 3 years on RBI rate pause

economictimes.indiatimes.com:

benchmark yield posting its biggest fall since 2020, as the Reserve Bank of India paused its rate hiking cycle and lifted investor demand for fixed income securities. The benchmark 7.26% 2033 bond yield ended at 7.1166%, dropping 20 basis points for the first quarter of the financial year and also posting its biggest fall since the three months ending June 30 2020, when it witnessed aggressive policy easing.

The yield has also posted its fourth consecutive quarterly drop. «Fundamentally, we are constructive on interest rates as we believe that India's policy rate-hike cycle is over,» said Vikas Garg, head of fixed income at Invesco Mutual Fund, adding that he expects to «first see the policy stance to be changed to 'neutral' and then followed by a rate cut cycle, although a delayed one,» said Vikas Garg, head of fixed income at Invesco Mutual Fund.

Bond yields plunged in the first two months of the financial year, with the benchmark yield dropping below 7% for the first time in over twelve months after a surprise pause from the Reserve Bank of India in April and relatively dovish Federal Reserve outlook. A sharp plunge in local retail inflation further improved investor appetite, with foreign investors and banks bulking up their bond positions.

India's retail inflation in May eased to 4.25% in May from 4.7% in April, moving closer to the RBI's target of 4% and staying within its 2%-6% range for the third straight month. The fall in inflation raised bets that the central bank was done with its rate hiking cycle.