Money & Banking

Bond traders await G-SAP auction announcement, CPI figure

Bhavik Nair Chennai | Updated on September 12, 2021

The RBI has so far purchased securities worth ₹90,000 crore cumulatively in July and August   - Vostrikov

‘Usually, it is shared in the first 10 days of the month’

Among the prevailing bullishness in the bond market, the one thing that disappointed traders last week was the absence of the anticipated G-SAP auction announcement by the Reserve Bank of India (RBI) where the Central bank conducts open market purchase of government securities.

The bond market was expecting the RBI to make the announcement on Thursday for the auction to be conducted this week, which did not happen. A trader said although this is not a reason to worry, the usual norm so far has been an announcement in the first 10 days of the month.

The Central bank had announced secondary market purchase operations of ₹1.20-lakh crore in its June monetary policy. The RBI has so far purchased securities to the tune of ₹90,000 crore cumulatively in July and August under the programme.

Another key trigger for the market this week would be the release of the consumer price index (CPI) inflation figure for August. Market participants are of the view that inflation is likely to remain subdued in the coming times which will cushion the bond yields, at least till the end of the year.

‘Persisting bullishness’

Ananth Narayan, Professor-Finance at SPJIMR, believes that the broad expectation for the next few months is that inflation is going to be much lower than what the MPC has been anticipating.

“This will help them to remain dovish in their stance. Also, the tax collections are looking good which is providing relief on the fiscal side. For August, I believe the CPI should come in at close to 5.6 per cent and core inflation should come just below 6 per cent.

The risks for the bond market include a sudden spike in inflation that looks unlikely, any external shock and the complacency in terms of the persisting bullishness in the bond market,” he said.

The benchmark yield hit levels close to 6.20 per cent on the higher side before closing the week at 6.18 per cent. Traders are of the view that the 6.25 per cent level will act as a support in the near term and the yield is unlikely to shoot beyond this mark unless there is any unanticipated shock in terms of inflation or external factors.

The market is also keeping an eye out for the second half borrowing calendar that is expected to be released later this month. Bond traders indicated that the government’s market borrowing in the first half of FY22 is likely to stand at close to ₹7-lakh crore and the second half borrowing should be anticipated at around ₹5-5.50-lakh crore.

Traders believe that if the figure remains anywhere close to ₹5-lakh crore or below, it will be a positive for the bond market.

Published on September 12, 2021

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