Crisil Predicts Bond Yields to Increase by 4-11 bps in Q2 Due to Oil Price and Inflation Factors

Indian bond yields are predicted by Crisil to rise by 4-11 basis points in the quarter ending September due to crude oil prices and the inflation trajectory. The 10-year benchmark government bond is expected to increase by 4 basis points during this period, while corporate and state bonds could see a change of up to 11 basis points. The 10-year benchmark bond settled at 7.11% at the end of June, experiencing a gain of 12 basis points throughout the month. Crisil’s outlook suggests that in July, it will fluctuate between 7.05% and 7.15%. State development bonds rose by 5 basis points to 7.39%, while corporate bonds (10-year public sector financial institutions) increased by 12 basis points to 7.49% in June. Housing Development Finance Corporation, which is now merged with HDFC Bank, saw a 5 basis point yield increase to 7.76% in June. AAA-rated non-banking finance companies and state-run companies had yields of 7.70% and 7.49%, respectively, for their 10-year bonds in June.

Crisil’s outlook on bond yields indicates that crude oil price movements, inflation, fiscal numbers, rate decisions by the Indian and US central banks, India’s economic growth trend, and foreign portfolio flows will influence yields in the September quarter. Consumer price inflation is expected to decrease to 5%, and India’s GDP growth is projected to slow to 6% in fiscal 2024. The RBI is anticipated to maintain status quo on rates in the coming meetings. Crisil expects an average crude oil price of $75-80 per barrel this fiscal year, compared to $95 last year. The ratings firm also observed that FPI inflows into debt rose to Rs 9,178 crore in June from Rs 3,276 crore in the previous month, supported by a stronger rupee. Crisil stated that if India’s current account deficit continues to decrease, the rupee may appreciate further, potentially attracting more FPI inflows.