Benchmark yields fall 8 bps amid positive cues


While the GDP for April-June grew at a record 20.1% due to the base effect and rebound in consumer spending, it allows the RBI to continue with its ultra-accommodative monetary policy, which will continue to support bond yields.

By Manish M Suvarna

The yields on 10-year benchmark government bonds have fallen by more than 8 basis points since the start of this week as positive domestic cues improved the appetite of investors. The benchmark 6.10%-2031 bond yield closed at 6.1713% on Thursday.

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Demand has substantially improved after the release of the of fiscal deficit and GDP data sets, which were in line with the market’s expectations. Lower deficit figures eased pressure on the rates and dealers don’t expect the central bank to normalise the policy in the near term.

Additionally, inflows from foreign portfolio investors (FPI), dovish speech from US Federal Reserve Chair Jerome Powell and pro-growth comments by RBI governor Shaktikanta Das further supported bond yields.

“I think it’s a combination of multiple factors. The Fed was dovish, the RBI remained growth supportive, inflation is expected to report lower numbers in the next couple of months, and most importantly, the fiscal deficit has come very impressive. The fiscal deficit numbers were significantly better than what the market was expecting,” said Mahendra Kumar Jajoo, chief investment officer, fixed income, Mirae Asset Investment Managers (India).

Traders who were on the sidelines in the past few days have started placing large bets after impressive fiscal deficit numbers which eased the fear of policy normalisation. The fall in borrowing cost will also help the government to accumulate funds at a lower cost.

While the GDP for April-June grew at a record 20.1% due to the base effect and rebound in consumer spending, it allows the RBI to continue with its ultra-accommodative monetary policy, which will continue to support bond yields.

Before the announcement of GDP numbers, most traders were hesitant to place bets, though there was some demand due to dovish comments by Fed. But GDP numbers relaxed the appetite of market participants as they now expect that the central bank will not hike rate and the system will continue to remain flush with liquidity.

Inflows from FPIs have increased in August after comments made by Powell. Comments on not hiking rates in near term boosted the sentiments of domestic bond traders. Most investors in such a lower interest rate scenario move towards emerging markets in search of higher returns. In August, FPIs purchased debt securities worth $1.635 billion, data on National Securities Depository showed.

“Bond yields are on a downward path as US taper remained a non-event and India’s MPC minutes showed a dovish tilt,” said Pankaj Pathak, fund manager, fixed income, at Quantum Asset Management.

Most dealers expect bond yields to continue to fall in coming days, even if there’s some profit booking. “Bond yields may fall closer to 6.10% if the current situation continues,” Jajoo said.

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