Indian government bonds rose in early trade on Thursday, on media reports about the country
planning tax relief for debt investors, but the gains were
capped on growing calls for a policy rate hike.
India plans to scrap capital gains tax on foreign portfolio
investments in government securities, which could help boost
such inflows, a source familiar with the matter said on
Thursday.
The Economic Times newspaper was the first to report
Wednesday’s cabinet approval of the plan. The finance ministry
did not immediately respond to a Reuters email seeking comment.
Foreign investors have net bought $1.4 billion of Indian
bonds this year but dumped nearly $28 billion in equities.
“These tax cuts aim to attract sticky foreign inflows into
debt, which could cushion the rupee’s slide and boost demand for
Indian bonds,” a private-bank trader said.
The rupee has lost over 5% and the 10-year yield has gained
34 basis points since the U.S.-Israeli war on Iran began on
February 28.
Traders remain wary ahead of the Reserve Bank of India’s
policy decision on Friday, as spillovers from the Iran conflict
complicate the macroeconomic outlook.
Nearly 80% of economists in Reuters’ poll expect the policy
repo rate to remain unchanged, with a growing minority betting
on a 25-basis-point rate hike.
India’s benchmark 6.48% 2035 yield fell 2 bps
to 7.0033% by 10:45 a.m. Bond yields move inversely to prices.
A ceasefire agreement between Israel and Lebanon boosted
hopes for a broader deal to end the US-Israeli war on Iran.
Brent crude dropped 0.9% to $96.97 a barrel, and the U.S.
10-year yield eased to 4.48% in Asian trade.
RATES
India’s OIS rates flattened after initially easing on
tax-relief reports, offset by caution over the RBI’s policy
decision.
The one-year swap was flat at 6.1050%, and
the two-year rate was at 6.34%. The five-year
rate was little changed at 6.6325%.