 "Will RBI spoil the bond party?")
The recent rally in bond yields was a welcome relief for banks, mainly the government-owned ones that were reeling under asset quality pressures, which dented their profitability in the last several quarters. The first two months of the current quarter saw yields on the government bonds declining, which would have helped them book treasury profits.
However, since the beginning of the month, bond yields started rising due to hawkish statements from the Reserve Bank of India (RBI) and the pullout of foreign investments from the debt market due to uncertainty over the US Fed’s pace of quantitative easing. As a result, yield on the 10-year benchmark government paper hardened by 6 basis points (bps) in June.
The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended at 7.30 per cent today. The bond was auctioned on May 17 and at that time, the yield was at 7.16 per cent.
“The decline in the sovereign yield curve, as witnessed during April and May 2013, could boost public sector banks’ profitability in the current quarter. Yields on the benchmark 10-year government securities (G-secs) declined by around 60 bps in the first two months of 2013-14, prompting a sharp increase in G-sec trading volumes, which could also be attributed to churning of the investment portfolio with a view to shoring up the profitability indicators,” rating agency Icra said in a note today.
Icra estimates that the profit on sale of investments/reversal of depreciation on investments at Rs 5,000-7,000 crore in the first quarter of 2013-14.
Now, all the eyes are on the mid-quarter review of monetary policy, which is scheduled for Monday. The bond street fears that RBI might play a spoilsport by not cutting the repo rate further. According to treasury officials of banks, this would lead to yields rising and the treasury portfolio of banks will be left bleeding.
After the auction of the new benchmark bond 7.16 per cent 2023, the yield is quoted much below even as the previous 10-year benchmark bond 8.15 per cent 2022 yield continues to be higher. However, if the central bank decides to adopt status quo on key policy rates on Monday, yields will rise.
2023 bond will rise by 10-20 bps by end-June. That would lead to banks taking a hit on the treasury portfolios,” said the treasury head of a public sector bank.
Currently, the repo rate stands at 7.25 per cent. Already this year, RBI has cut it by 75 bps in three tranches.
Earlier, there was a higher probability of a repo rate cut on Monday, said another treasury head of a public sector bank. However, considering that the rupee has been highly volatile on foreign institutional investors withdrawing their investments from domestic debt in recent times, RBI may not cut interest rates on Monday, he added.
Other experts said the next repo rate cut is expected in July.
However, since the beginning of the month, bond yields started rising due to hawkish statements from the Reserve Bank of India (RBI) and the pullout of foreign investments from the debt market due to uncertainty over the US Fed’s pace of quantitative easing. As a result, yield on the 10-year benchmark government paper hardened by 6 basis points (bps) in June.
The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended at 7.30 per cent today. The bond was auctioned on May 17 and at that time, the yield was at 7.16 per cent.
“The decline in the sovereign yield curve, as witnessed during April and May 2013, could boost public sector banks’ profitability in the current quarter. Yields on the benchmark 10-year government securities (G-secs) declined by around 60 bps in the first two months of 2013-14, prompting a sharp increase in G-sec trading volumes, which could also be attributed to churning of the investment portfolio with a view to shoring up the profitability indicators,” rating agency Icra said in a note today.
Icra estimates that the profit on sale of investments/reversal of depreciation on investments at Rs 5,000-7,000 crore in the first quarter of 2013-14.
Now, all the eyes are on the mid-quarter review of monetary policy, which is scheduled for Monday. The bond street fears that RBI might play a spoilsport by not cutting the repo rate further. According to treasury officials of banks, this would lead to yields rising and the treasury portfolio of banks will be left bleeding.
After the auction of the new benchmark bond 7.16 per cent 2023, the yield is quoted much below even as the previous 10-year benchmark bond 8.15 per cent 2022 yield continues to be higher. However, if the central bank decides to adopt status quo on key policy rates on Monday, yields will rise.
2023 bond will rise by 10-20 bps by end-June. That would lead to banks taking a hit on the treasury portfolios,” said the treasury head of a public sector bank.
Currently, the repo rate stands at 7.25 per cent. Already this year, RBI has cut it by 75 bps in three tranches.
Earlier, there was a higher probability of a repo rate cut on Monday, said another treasury head of a public sector bank. However, considering that the rupee has been highly volatile on foreign institutional investors withdrawing their investments from domestic debt in recent times, RBI may not cut interest rates on Monday, he added.
Other experts said the next repo rate cut is expected in July.