 "Banks buying more of G-secs due to hopes of larger gains")
As government bond yields are seen to be falling further, banks are incrementally investing more in these rather than looking at other avenues like corporate bonds and commercial papers (CP), where the gains are seen to be limited.
Benefits in the form of higher profits are seen coming in before the close of the financial year.
Yields in government bonds are seen falling due to hopes of more rate cuts, less government borrowing and further enhancement in the limits of foreign institutional investors (FIIs). Currently, the FII limit in government bonds is nearly full.
The yield on the 10-year benchmark government bond, which ended at 9.1 per cent on April 7, has dropped sharply since the time Prime Minister Narendra Modi-led government came to power. The fall in yields is also attributed to expectations of a rate cut by the Reserve Bank of India (RBI).
In January, RBI announced a rate cut of 25 basis points and the Street believes at least further cuts of another 50 basis points is in the offing in 2015.
“A majority of the investors are looking at government securities because the fiscal deficit is expected to narrow, due to which there would be less government borrowing next financial year. There is an expectation in the market that the FII limit in government bonds may be enhanced further. Besides, with a rate cut, government bond yields will fall more,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
“In statutory liquidity ratio (SLR) securities (like government bonds) there is no capital requirement while in CPs or corporate bonds, there is a need for 100 per cent capital for capital adequacy. The gap between corporate bond and government bond yields are not very large, so it is better to invest in government bonds,” said Anoop Verma, the vice president for treasury at Development Credit Bank.
On Monday, the yield on the 10-year bond ended at 7.73 per cent compared with previous close of 7.7 per cent. This week will be the last auction of government bonds for the current fiscal and later this month in the Union Budget the finance minister will announce next financial year’s market borrowings.
Benefits in the form of higher profits are seen coming in before the close of the financial year.
Yields in government bonds are seen falling due to hopes of more rate cuts, less government borrowing and further enhancement in the limits of foreign institutional investors (FIIs). Currently, the FII limit in government bonds is nearly full.
The yield on the 10-year benchmark government bond, which ended at 9.1 per cent on April 7, has dropped sharply since the time Prime Minister Narendra Modi-led government came to power. The fall in yields is also attributed to expectations of a rate cut by the Reserve Bank of India (RBI).
In January, RBI announced a rate cut of 25 basis points and the Street believes at least further cuts of another 50 basis points is in the offing in 2015.
“A majority of the investors are looking at government securities because the fiscal deficit is expected to narrow, due to which there would be less government borrowing next financial year. There is an expectation in the market that the FII limit in government bonds may be enhanced further. Besides, with a rate cut, government bond yields will fall more,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
“In statutory liquidity ratio (SLR) securities (like government bonds) there is no capital requirement while in CPs or corporate bonds, there is a need for 100 per cent capital for capital adequacy. The gap between corporate bond and government bond yields are not very large, so it is better to invest in government bonds,” said Anoop Verma, the vice president for treasury at Development Credit Bank.
On Monday, the yield on the 10-year bond ended at 7.73 per cent compared with previous close of 7.7 per cent. This week will be the last auction of government bonds for the current fiscal and later this month in the Union Budget the finance minister will announce next financial year’s market borrowings.