RBI may step up bond supply, yields at 8% a buy opportunity
Last two weeks have been quite an action-oriented for the debt markets. After the 25 basis points (bps) rate hike by the Reserve Bank of India (RBI) on June 6, we saw the US Federal Reserve (Fed) also increasing its rates by 25 bps. The DOT plot is now signalling two more rate hikes for the calendar year.
Last two weeks have been quite an action-oriented for the debt markets. After the 25 basis points (bps) rate hike by the Reserve Bank of India (RBI) on June 6, we saw the US Federal Reserve (Fed) also increasing its rates by 25 bps. The DOT plot is now signalling two more rate hikes for the calendar year.
Later during the week the European Central Bank (ECB) also detailed its plans to end its massive bond-buying program while also signalling that it has still some time to start hiking interest rates. This was perceived to be quite dovish by the markets and led to further dollar strengthening exerting further pressure on the rupee which touched a weekly low of 68.03/$.
Back home, we had the first SDL (state loans) auction post the change in valuation rules indicated in the Monetary Policy document. The auction response was quite timid with only two states (out of 6) accepting bids at around 8.60 (65 bps higher than underlying central government yields). Out of the total auction size of Rs 5,000 crore, only a sum of Rs 1,000 crore was accepted by the states amidst lack of demand and the confusion regarding valuation rules. With low volumes bond markets continued to trade lacklustre in a narrow range during the week under review.
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Markets are currently awaiting cues from RBI/ government for further directions. There have been indications of a re-alignment of issuances at the shorter end of the curve and a private placement of government debt with institutions like retirement funds etc. These measures can soothe the nervous sentiments currently prevailing in the debt markets. With expectations of a normal monsoon and stability in crude prices, we can expect value buying to emerge at around 8% levels.
By Anand Bagri/ DNA Money
(The writer is head, domestic markets, RBL Bank)
11:19 am
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