Indian 10-year bond yields remain bid after...>

INDIA: Indian 10-year bond yields remain bid after a surge in buying yesterday

saw yields fall by ~30bps, trading back to 7.33%, reversing all of February's

increase. The trigger for the move was the decision by the finance ministry to

auction just 48% of its planned annual bond sales in H1, compared to 60%-65% as

is customary. The size of the annual debt issuance was also cut. 

- As we argued in a previous article "Weak Rupee, Bonds Not Justified By India

Economy" (For Full Story See Main Wire At 09:10 GMT 03/16), Indian yields were

too high relative to fundamental inflationary pressures and despite widespread

expectations of near-term rate hikes by the RBI, the steep yield curve would

keep 10-year yields anchored. 

- We do not expect falling Indian yields to undermine the rupee, which should be

supported by strong real GDP growth, still-low inflation, and the potential for

rupee bond ownership limits to be increased. The rupee has one of the highest

real interest rates in the region, and the economy remains relatively isolated

from external shocks.