Forex

Bond yields hit 4-month high on Govt borrowing plan

Priya Nair Mumbai | Updated on March 29, 2012 Published on March 28, 2012

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Bond yields touched a four-month high following fears of oversupply of Government securities in FY2013. This could have the effect of crowding out private investments.

According to the programme announced on Tuesday, the Government will raise 65 per cent of its borrowing for FY2013 in the April-September period.

The benchmark 8.79 per cent paper opened at Rs 101.25 (yield-to-maturity: 8.59 per cent) and closed at Rs 101.08 (8.62 per cent YTM). The benchmark had closed at Rs 101.84 (8.5 per cent YTM) on Tuesday.

During the day it fell to a low of Rs 101 (8.63 per cent YTM). These levels were seen around October-November 2011, after touching 9 per cent in September.

According to Mr Rajeev Mahrotri, Head Trading, Global Markets Group, IndusInd Bank, the borrowing calendar contains no surprise. “The amounts were known. Two-thirds of the borrowing typically happens in the first half. It is just that the longer dated securities are a little bit on the higher side. The market is reacting to the stopping of Open Market Operations by the RBI and the looming huge supply of G-Secs,'' he said. This, along with higher crude oil prices due to the slightly better global economic conditions, perhaps impacted sentiments, he added.

A dealer with a public sector bank said the huge borrowing along with the liquidity shortage dampened market sentiments. Now, the chances of a rate cut by the RBI in April seem higher.

A Barclays Bank report said, “We see the 10-year G-Sec yields rising towards 8.70 per cent from the current 8.58 per cent, with risks biased to the upside. Although bonds could receive some near-term support from a potential RBI rate cut on April 17, supply pressures are likely to continue pushing yields higher. If the RBI does not cut rates, we do not rule out 10-year G-Sec yields moving towards the November 2011 highs of 8.9-9.0 per cent.”

priyan@thehindu.co.in

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Published on March 28, 2012
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