PSU banks to halt divesting government debt: Report

State-run banks are poised to reverse a two-month trend of divesting government debt, with an anticipated return to buying in the upcoming year. Traders cite the allure of favourable prices and a pre-emptive move before potential rate cuts drive yields higher, news agency Reuters reported.

Clearing house data reveals net sales of government bonds by these major buyers totalling Rs 14,380 crore in December and Rs 8,840 crore in November. This follows a notable October surge of Rs 16,500 crore in purchases when the central bank announced open market bond sales to manage liquidity.

Despite a 10-year benchmark bond yield retreat to around 7.20 per cent, financial experts view the current level as enticing, indicating a favourable entry point for investment. Treasury officials, eyeing reduced government debt supply in January-March at Rs 2.37 lakh crore, plan to increase participation in primary auctions.

Additionally, expectations of continued foreign inflows are driven by anticipation of India's debt inclusion in the JPMorgan index in June. Traders also anticipate the central bank's mid-year policy rate easing to further drive yields down, with a projected test of 7.10% levels in the last quarter.

Vijay Sharma, a senior executive vice president at primary dealership PNB Gilts, emphasizes the expectation that benchmark yields should remain relatively stable, providing room for fresh position building.

(With Reuters inputs)