Bond market signals limited room for further rate cuts

India's bond market sees further rate cuts as less likely now, at least according to one indicator.

- Abirami Sekar

The gap between India's 10-year government bond yield and the repo rate is at 96 basis points (bps), close to its widest in two years. This spread expanded as the benchmark yield rose on concerns about the near-term fiscal implications of reducing goods and services tax (GST) slabs to 5% and 18% and moving several categories to lower rates.

The yield difference reflects the stage of the rate cycle as spreads are "very narrow" at the start and high towards the end of it, according to Rajkumar Singhal, chief executive of Quest Investment Advisors, an investment advisory firm. "Currently, after having seen deeper rate cuts, the expectation is that going forward, rate cuts will be limited, and that's why spreads are higher."