The benchmark 10-year government bond yields are currently on the decline, even touching the lowest level since demonetisation.
The benchmark 10-year government bond yields are currently on the decline, even touching the lowest level since demonetisation, a couple of days back. The three rate cuts by the Reserve Bank of India (RBI) and rise in demand of government bonds have pulled down the yields. Even as further expectation of another rate cut in the upcoming monetary policy review is also adding to the sentiment, The monitoring of transmission of policy rate cuts to bank lending rates would be imperative going forward, a rating agency said. “The transmission to bank lending rates has been mixed with a decline in MCLR while a marginal increase in WALR (both outstanding and fresh loans). It would be interesting to see whether GSec yields and corporate bond yields continue to decline with expectations of policy rate cuts by the MPC amidst other factors,” CARE Ratings also said in the report.
The fall in bond yields is cyclical and eventually they are expected to return to normal levels going forward, veteran market investor Sandip Sabharwal told Financial Express Online. “The best way to do this is for RBI to increase system liquidity further which they are not keen to do at this stage”, he added.
Even as correction is being seen in the government bond yields, domestic catalysts suggest a largely positive outlook for the bond market in the short-term, a DBS report said. The bond markets will remain bullish despite this correction, it added.
On December 6, 2016, the yield on the 10-year bond fell 10 basis points to 6.33 per cent as on Tuesday. It fell by nearly 100 basis points in FY20 so far. On Tuesday, the yields plunged to a two-and-a-half year low of 6.31 per cent before closing at 6.33 per cent.