India’s Bond Yield Projected to Drop to 7% By Fiscal Year-End, Says CLSA

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India’s Bond Yield Projected to Drop to 7% By Fiscal Year-End, Says CLSA

A recent forecast from CLSA predicts a drop in the yield of benchmark Indian bonds to about 7% by the end of this fiscal year, driven by strong demand and an overdone market selloff. This comes after the central bank's unexpected strategy of initiating open market sales of bonds sparked speculation, pushing the 7.18% 2033 bond yield to a seven-month peak of 7.40% earlier this week.

Despite this, CLSA anticipates a sell-off that will initially drive the 10-year G-sec yield to 7.4%. However, they predict it will ease to 7.0% by March 2024 and further to 6.5% by March 2025 due to aggressive pricing in the domestic market.

These expectations are tied to rate predictions associated with the U.S. Federal Reserve's higher-for-longer policy, according to Indranil Sengupta, CLSA's India economist. The unfolding scenario highlights the impact of global monetary policy on India's bond market and underlines the influence of external factors on domestic financial markets.

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