What should debt market investors do amid cooling bond yields?

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₹2.1 lakh crore, almost double the amount which bond markets expected.While the higher dividend provides larger flexibility to the central government on the fiscal side, the positive surprise enthused the markets, with the benchmark 10 year bond yield ending the month at 6.98%.Also Read: Expert view: Indian stock market not in a bubble, still below the long-term trendline, says Devina Mehra of First GlobalMeanwhile, India’s headline retail inflation fell to a 12-month low of 4.75% in May. Domestic GDP growth for FY24 rose to 8.2% YoY from 7.0% in FY23, while GVA growth rose to 7.2% versus 6.7% in FY2023.

Trade deficit widened to a seven-month high of $23.78 billion in May, government data showed.“Strong GDP growth rate, stable inflation and external position underscore the current strong macroeconomic position of India providing a tailwind for markets. INR was stable during May, ending the month at 83.47.

FPI inflows into the bond markets turned positive with $1.05 billion of inflows after the negative number in the month of April. On a CYTD basis, FPI flows into debt remain positive at $6.76 billion," said Puneet Pal, Head- Fixed Income, PGIM India Mutual Fund.Also Read: India Inc’s revenue growth estimated to slow down QoQ, operating margins to remain steady at 15-18% in Q1FY25: ICRAThe yield curve remained flat as demand-supply dynamics are favourable.

The Overnight Index Swap (OIS) curve echoed the bond curve and went lower during the month. The 1 year OIS was down 3 bps ending the month at 6.85%, while the 5 year OIS was down by 16 bps during May, ending the month at 6.44%.