India’s shorter bonds will likely resume their underperformance against longer peers as tightening liquidity and monetary conditions rein in appetite for the rate-sensitive notes.
The Reserve Bank of India may raise interest rates by as much as 75 basis points in the coming months, adding to a 25-basis-point hike on Oct. 7, according to IDFC First Bank Ltd. and Deutsche Bank AG. The central bank is also absorbing liquidity from the banking system, with excess cash dwindling from a record high in early September. The impact is visible in the bond market where the gap between the shorter and longer-end yields shrunk to the lowest since May earlier this month, before widening again as crude prices slid.
