Bond yields, already down from a high of 7.78% on March 6 to 7.33% on Tuesday, could fall further with foreign portfolio investors’ (FPIs) interest in Indian bonds continuing to remain intact.
Bond yields, already down from a high of 7.78% on March 6 to 7.33% on Tuesday, could fall further with foreign portfolio investors’ (FPIs) interest in Indian bonds continuing to remain intact. Tuesday’s auction of investment limits for central government securities fetched bids worth Rs 14,003 crore against the notified amount of Rs 11,045 crore.
Aggressive bids took the cut-off to 0.86 basis point (bps) this time compared with the 0.31 bps seen during the previous auction held on March 13.
Market participants attribute the success of Tuesday’s auction to the positive sentiment prevailing in the market after the government announced on March 26 that it intended to reduce its borrowings dramatically in the first half of the year as well as the Reserve Bank of India’s (RBI) changed stance when, on April 2, it allowed banks to spread their mark-to-market (M2M) provisioning over four quarters. With this changed stance, PSU banks will get back to buying bonds — they were on a virtual strike due to high M2M losses.
Gross market borrowings of the government will now touch Rs 2.88 lakh crore in the April-September period, against Rs 3.72 lakh crore a year earlier, economic affairs secretary Subhash Chandra Garg had said.
Bond yields rose from 7.22% to 7.40% when, in late December, the government said it planned to borrow an additional Rs 50,000 crore through dated securities in fiscal year 2018.
The next shocker came in January this year when RBI deputy governor Viral Acharya indicated in his speech that interest rate risk of banks could not be managed over and over again by the regulator. This spooked the market pushing the benchmark yield up by 11 bps to 7.38%.
If FPI interest in Indian bonds continues to remain intact, this could be seen positive for the yields as the government’s borrowing cost depends on it. The benchmark yield closed 7 bps down on Tuesday at 7.33%.