India 10-year government bond yields have.....>

INDIA: India 10-year government bond yields have risen in recent days despite

the decision on Apr 6 by the RBI to hike the ceiling on foreign portfolio

investments in government bonds. The yield is currently 7.33%, up 20bps from the

Apr 5 low.

-The limit will be raised in phases with 0.5% each year for next two years from

a current 5% to 5.5% in FY2018-19 and 6.0% in 2019-20. The decision marks the

third piece of positive news for Indian bond investors in recent weeks. In late

March, the government announced that it would issue just 48% of its total bond

requirement for the financial year starting April 1, compared to the usual 60%.

-Separately, the RBI announced last week that it will allow banks to spread the

cost of any losses on government bond holdings over four quarters, from one

quarter currently. This was seen as a positive for Indian bonds as it increases

the willingness of banks to buy and hold government bonds.

-The positive news appears to be fully priced in, however, with yields having

fallen by 50bps over the past 5 weeks.