DBS Group Research strategist Sherilyn Chew has highlighted that Indian government bond yields have moved higher over the past week, driven by hawkish Reserve Bank of India (RBI) minutes and volatility at the long end of the US Treasury market [1]. Chew notes that the 2-year India Government Bond (IGB) yield has returned to levels last seen before the RBI’s 5 June policy package, indicating a considerable amount of hawkish repricing in the front end of the curve [1].
Chew considers current 2-year IGB yield levels increasingly attractive, suggesting they could offer scope for yields to retrace lower if incoming data or policy communication turns more dovish [1]. She also points out that fading FCNR(B)-related liquidity support is expected to weigh on the 5-year sector, which may lead to a steeper 2s5s IGB curve and a compression in the 2-year IGB-OIS spread [1].
The normalization of money market rates and the waning tailwinds that previously supported the 5-year IGB and OIS further reinforce the potential for curve steepening [1]. No specific market reactions or analyst opinions beyond Chew’s assessment are provided in the article [1].
CONCLUSION
Indian government bond yields have risen following hawkish RBI minutes and US Treasury volatility, with DBS viewing front-end yields as increasingly attractive. The fading liquidity support and normalization of money market rates may lead to a steeper yield curve. Investors could see opportunities in the 2-year sector if policy turns more dovish.