 "Bond buying in vogue among banks, fund houses and insurers")
Bond yields, which had been heading north since the Reserve Bank of India (RBI)'s second bi-monthly policy review, got some relief from the US Fed's statement along with the monsoon picking up, allaying fears of a spike in food prices. At the policy review, RBI had taken a hawkish stance despite a rate cut.
After rising to 8.11 per cent on June 12, yield on the 10-year benchmark government bond fell 23 basis points (bps) in the week ended June 19. There had been profit-booking since then and the yield ended at 7.92 per cent on Tuesday, up 2 bps compared with its previous close. The yield had risen by 11 bps to end at 7.93 per cent on June 2 after the central bank's monetary policy review.
"The macroeconomic indicators are positive with the more or less normalised monsoon and the pace of fall in inflation trajectory is faster. Bank credit is not picking up due to which deployments of funds can go towards bonds," said N S Venkatesh, executive director and head of treasury at IDBI Bank.
In fact, data from the Clearing Corporation of India (CCIL) show trading volumes in government bonds, which stood at Rs 30,857.57 crore on June 12, rose to Rs 68,788.03 crore last Friday, when the yield on the 10-year benchmark bond dropped to 7.88 per cent.
Mutual funds, too, have accelerated their bond buying in June. Compared with Rs 22,626 crore in April and Rs 17,364 crore in May, mutual funds bought net debt, including commercial paper and certificate of deposits, worth Rs 45,929 crore between June 1 and June 22.
"There is an expectation in the market that foreign institutional investors' (FIIs') limit in government debt may be set in rupee terms and that would lead to enhancement of the limit. Fund houses have been buying bonds and if this limit is set in rupee terms, then it would be very positive move for the bond market," said Abhiroop Mukherjee, associate vice-president and fund manager (fixed income) at Motilal Oswal Mutual Fund. The FII limit for government debt stands at $30 billion currently and it is near full. A shift from dollar to rupee will lead to enhancement of the limit.
The US Fed, in its open market committee meeting on June 16-17, had kept its near-zero benchmark interest rate unchanged and Fed chair Janet Yellen said the tightening would be "gradual," and they wouldn't follow a "mechanical" formula. The US Fed signalled it was on track to raise interest rates later this year, though subsequent increases are likely to be more gradual than expected earlier. "Insurers continue to be largely positive when it comes to bond buying. Yields may stabilise at these levels in the absence of further triggers," said S Prabhu, head of fixed income at IDBI Federal Life Insurance. Recent data show the Consumer Price Index-based inflation inched up to 5.01 per cent in May compared to 4.87 per cent in April. A good monsoon serves as a positive factor for inflation, and interest rates as well. If inflation falls, it should potentially lead to lower interest rates as the two are inversely co-related.
Earlier, India Meteorological Department (IMD) had predicted a below-normal southwest monsoon. The pace of monsoon picked up this month and on Thursday, L S Rathore, IMD director-general, said the June rains had been good and he expected the same for the next 10-12 days. Rathore added despite that, July rains remain a concern.
After rising to 8.11 per cent on June 12, yield on the 10-year benchmark government bond fell 23 basis points (bps) in the week ended June 19. There had been profit-booking since then and the yield ended at 7.92 per cent on Tuesday, up 2 bps compared with its previous close. The yield had risen by 11 bps to end at 7.93 per cent on June 2 after the central bank's monetary policy review.
"The macroeconomic indicators are positive with the more or less normalised monsoon and the pace of fall in inflation trajectory is faster. Bank credit is not picking up due to which deployments of funds can go towards bonds," said N S Venkatesh, executive director and head of treasury at IDBI Bank.
In fact, data from the Clearing Corporation of India (CCIL) show trading volumes in government bonds, which stood at Rs 30,857.57 crore on June 12, rose to Rs 68,788.03 crore last Friday, when the yield on the 10-year benchmark bond dropped to 7.88 per cent.
Mutual funds, too, have accelerated their bond buying in June. Compared with Rs 22,626 crore in April and Rs 17,364 crore in May, mutual funds bought net debt, including commercial paper and certificate of deposits, worth Rs 45,929 crore between June 1 and June 22.
"There is an expectation in the market that foreign institutional investors' (FIIs') limit in government debt may be set in rupee terms and that would lead to enhancement of the limit. Fund houses have been buying bonds and if this limit is set in rupee terms, then it would be very positive move for the bond market," said Abhiroop Mukherjee, associate vice-president and fund manager (fixed income) at Motilal Oswal Mutual Fund. The FII limit for government debt stands at $30 billion currently and it is near full. A shift from dollar to rupee will lead to enhancement of the limit.
The US Fed, in its open market committee meeting on June 16-17, had kept its near-zero benchmark interest rate unchanged and Fed chair Janet Yellen said the tightening would be "gradual," and they wouldn't follow a "mechanical" formula. The US Fed signalled it was on track to raise interest rates later this year, though subsequent increases are likely to be more gradual than expected earlier. "Insurers continue to be largely positive when it comes to bond buying. Yields may stabilise at these levels in the absence of further triggers," said S Prabhu, head of fixed income at IDBI Federal Life Insurance. Recent data show the Consumer Price Index-based inflation inched up to 5.01 per cent in May compared to 4.87 per cent in April. A good monsoon serves as a positive factor for inflation, and interest rates as well. If inflation falls, it should potentially lead to lower interest rates as the two are inversely co-related.
Earlier, India Meteorological Department (IMD) had predicted a below-normal southwest monsoon. The pace of monsoon picked up this month and on Thursday, L S Rathore, IMD director-general, said the June rains had been good and he expected the same for the next 10-12 days. Rathore added despite that, July rains remain a concern.