November knock

The yield on the 10-year benchmark government security (G-sec) opened November at 6.80% and closed at 6.75%, down 9 basis points (bps) from its October close of 6.84% and below Crisil’s forecast range of 6.79-6.89%.

Domestic bond prices opened on a positive note, tracking lower US Treasury yields. Initially, bonds traded in a narrow range with muted volumes amid uncertainty over the outcome of presidential elections in the US. On November 6, US Treasury yields surged on Donald Trump’s win. However, on November 9, US yields softened after the Federal Open Market Committee (FOMC) cut key rates by 25 basis points, supporting domestic bond prices. Results of the Reserve Bank of India’s (RBI) weekly G-sec auction were also in line with market expectations. The 10-year benchmark G-sec closed the first week at 6.77%.

The second week opened steady amid mixed global and domestic cues. For most of the week, higher US Treasury yields and a rise in domestic retail inflation to a 14-month high at 6.2%, beating market expectations, weighed on bond prices. The 10-year benchmark G-sec closed the week at 6.83%.

In the third week, bonds traded in a narrow range amid lack of global and domestic news flow. The 10-year benchmark closed the week at 6.85%.

In the fourth week, bond yields eased, tracking lower US Treasury yields and the impending release of GDP data. The second quarter fiscal 2025 GDP print came in at 5.4%, significantly lower than the market expectation of 6.7%. The weaker GDP data heightened hopes of a policy rate cut and liquidity easing by the central bank. The benchmark 10-year yield closed the week at 6.75%.

That said, on December 6, the RBI’s Monetary Policy Committee (MPC) decided to keep its policy repo rate unchanged at 6.50% for the 11th consecutive time. The MPC said real GDP growth in the second quarter was much lower than expectation, largely due to a substantial deceleration in industrial growth to 2.1% in the second quarter from 7.4% in the first quarter. The central bank slashed the cash reserve ratio (CRR) by 50 bps to 4% from 4.5% to boost liquidity inthe financial system. The 10-year G-sec yield inched up 6 bps to 7.74% after the policy decision.