MUMBAI: Indian government bond yields fell for the third consecutive month, a first in two years, with the benchmark bond yield’s aggregate fall in the period at its highest in over three years.

The benchmark 7.26% 2033 bond ended at 6.9874% on Wednesday, after closing at 7.0102% in the previous session, in a month that saw it dropping to below 7% for first time in 13 months.

The 10-year benchmark yield dipped 13 basis points (bps) in May, after falling 20 bps in April and 15 bps in March.

India bond yields flattish with focus on US Treasury moves

The yield witnessed its third monthly fall for first time since March-May 2021, and its biggest fall since February-April 2020.

“Commodity prices have eased and inflation is also trending lower, giving confidence to investors to go long as rate hike cycle of Indian central bank seems to be over,” said Naveen Singh, head of trading at ICICI Securities Primary Dealership.

India’s retail inflation eased to 4.70% in April, and economists expect the next few readings to be comfortably below the Reserve Bank of India’s (RBI) upper tolerance level, including May’s reading, that could drop to around 4.2%.

The RBI’s monetary policy decision is due on June 8. The central bank had surprised markets by maintaining a status quo on policy rates in April, after raising rates by 250 bps in the previous financial year.

Traders also await India’s growth data releasing later in the day, which is expected to show the economy grew by 5% in the January-March quarter, from 4.4% in the previous quarter.

India’s bond yields fell despite U.S. yields rising in May, as strong economic data and hawkish comments from officials have increased the chances of another rate hike from the U.S. Federal Reserve on June 14.

The odds of another 25 bps hike stand at 58%, sharply higher than around 5% at the beginning of this month. The Fed has raised rates by 500 bps since March 2022 to the 5.00%-5.25% mark.