2021-07-27 12:45:00

Money Market

Money Market View 

The benchmark 6.10% bond maturing in 2031 is at Rs. 99.47  yielding 6.17%,  against 99.49 rupees and 6.17% yesterday. Other bond yields were up by one basis point.  The firming global oil prices and the uncertainty  surrounding  FOMC remain as 
the key negatives for the bond prices.

Notwithstanding  dismissal of Inflation as a transitory  phenomenon  by the Central bank- in line with the global tool kit- there is a very distinct probability  that spiraling  Inflation could trigger apprehensions about the expanding RBI balance sheet.

RBI might take fresh measures to anchor 10-year benchmark yield after it set the cut-off yield on the paper just shy of the 6.15% mark, which traders consequently see as the central bank`s tolerance limit for the 10-year yield.

The next major event for the bond market will be the RBI`s policy statement on Aug 6. Market participants will keenly watch out for the central bank`s guidance on inflation.

State Govt papers :

India`s state bond yields expected to fall for first time in six weeks as quantum on sale is lower. States selling Rs.70 billion of bonds maturing in 9-10 years today.
For the time being, state yields may not  jump much above the 7% handle as there is a chance of RBI  buying these papers in future GSAPs .

RBI normally avoids conducting bond purchase auctions in the same week as a monetary policy meeting but Markets are  hopeful that they  would conduct a special open-market operation this week, wherein it would buy on-the-run securities while selling short-term papers.

Short term yields :

Markets are seen favouring short-term bonds as spreads between those and the Treasury bills have risen sharply. After  govt announced it would borrow Rs. 170 bln rupees in T-bills every week in Jul-Sep against  Rs.360 bln rupees weekly in Apr-Jun, the cut-off yield at the auction of 182-day T-bill fell 16 bp to 3.56% between Jun 30 & Jul 20. In the corresponding span,  yield on the 5-year benchmark fell only 7 bp to 5.64%.

CEA comments :

Chief Economic Adviser Krishnamurthy Subramanian said the government did not expect to borrow extra this financial year, and could potentially improve upon the targetted fiscal deficit of 6.8%.

Markets  chose to ignore his comments as  he had expressed similar views before and that the government`s gross borrowing of 12.06 trln rupees for the current fiscal year was likely to be reduced only marginally even if CEA `s estimates were correct.