Election results to drive bond market sentiment: Jajoo
Election results to drive bond market sentiment: Jajoo
Bond markets maintained the positive momentum last week as well with benchmark 10 year government bond yields easing by another 6 bps to 8.75%. Spurred by hopes of a decisive mandate in general elections, surge in equity markets to a new lifetime high, igniting hopes of large overseas capital flows and stronger rupee, traders built up huge positions. Strong buying support from nationalised banks for two consecutive trading sessions also helped 10-year yield hit the intra-week low of 8.71% before closing slightly higher at 8.75% at end due to some profit booking. Volatility remains the order of the day yet as underlying concerns of high inflation and global headwinds bring in periodic phases of nervousness. Slight confusion in the ban on exit polls till election results are to be announced on May 16 and subsequent clarification that ban on exit poll is till May 12 only, the end of voting period led to 10 bps volatility in bond yields.
The US Fed chair Janet Yellen reiterated the need for easy monetary policy sighting the risks from disappointing housing sector growth in US and ongoing geopolitical tensions in Ukraine. ECB while holding its benchmark rate at 0.25% hinted at a possible reduction in interest rates in its next meeting scheduled in June. Given the dovish stance from the US Fed and ECB, US 10-year treasury has remained in the narrow band of 2.58-2.65% for sometimes now. Continued weakness in greenback against the euro and the strengthening rupee, where it again traded below 60 mark last week also helped improve sentiment. Gains in rupee remain capped around 60 mark though for now as traders believe RBI will remain a net buyer at that level. The rupee finally closed mildly stronger at 60.03 from 60.16.5Y AAA bond yield fell 7 bps from 9.49% to 9.42%, while 10Y AAA bonds eased 11bps from 9.53% to 9.42%. On domestic data front, trade deficit for the month of April improved further to $10.1bn from $10.5bn earlier, helped by deceleration in oil imports.
The additional liquidity infusion of Rs 15,000 crore last week helped normalized the overnight rates in the beginning of the reporting fortnight. The overnight rates hovered in the band of 7.70% - 8.15% during the week. The liquidity adjustment facility balances rose from Rs 8,229 crore to Rs 20,923 crore, while marginal standing facility borrowings declined from Rs 5,235 crore to Rs 1,000 crore. The three month PSU bank certificate of deposit rates were unchanged at 9.03%.The one year bank CD rates nudged lower by 2bps from 9.24% to 9.22%. RBI did not roll over 7 day term repo in anticipation of flows from government bond redemptions this week.
This week will see the announcement of the general elections results. A decisive mandate in favour of any single alliance will have the potential to take the bond yields lower by another 25 bps, closer to 8.50% mark. However a fractured mandate can trigger a mild sell-off that can cause the 9% mark to be tested again. Monthly inflation data to be released this week is expected to show a mild uptick in inflation, however the election outcome is likely to prevail over data points this week. As is clear, volatility is going to be order of the week given the huge event. Sans the event risk, slowing inflation and stabilising global market sentiments call for further gains in bonds for the week. Any violent sell-off in the event of a fractured mandate should be bought in. Short term money market rates are likely to remain lacklustre as they have been over the past month.
Mahendra Jajoo is Executive Director and CIO - fixed income at Pramerica Asset Managers
Business Standard
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Bond markets maintained the positive momentum last week as well with benchmark 10 year government bond yields easing by another 6 bps to 8.75%. Spurred by hopes of a decisive mandate in general elections, surge in equity markets to a new lifetime high, igniting hopes of large overseas capital flows and stronger rupee, traders built up huge positions. Strong buying support from nationalised banks for two consecutive trading sessions also helped 10-year yield hit the intra-week low of 8.71% before closing slightly higher at 8.75% at end due to some profit booking. Volatility remains the order of the day yet as underlying concerns of high inflation and global headwinds bring in periodic phases of nervousness. Slight confusion in the ban on exit polls till election results are to be announced on May 16 and subsequent clarification that ban on exit poll is till May 12 only, the end of voting period led to 10 bps volatility in bond yields.
The US Fed chair Janet Yellen reiterated the need for easy monetary policy sighting the risks from disappointing housing sector growth in US and ongoing geopolitical tensions in Ukraine. ECB while holding its benchmark rate at 0.25% hinted at a possible reduction in interest rates in its next meeting scheduled in June. Given the dovish stance from the US Fed and ECB, US 10-year treasury has remained in the narrow band of 2.58-2.65% for sometimes now. Continued weakness in greenback against the euro and the strengthening rupee, where it again traded below 60 mark last week also helped improve sentiment. Gains in rupee remain capped around 60 mark though for now as traders believe RBI will remain a net buyer at that level. The rupee finally closed mildly stronger at 60.03 from 60.16.5Y AAA bond yield fell 7 bps from 9.49% to 9.42%, while 10Y AAA bonds eased 11bps from 9.53% to 9.42%. On domestic data front, trade deficit for the month of April improved further to $10.1bn from $10.5bn earlier, helped by deceleration in oil imports.
The additional liquidity infusion of Rs 15,000 crore last week helped normalized the overnight rates in the beginning of the reporting fortnight. The overnight rates hovered in the band of 7.70% - 8.15% during the week. The liquidity adjustment facility balances rose from Rs 8,229 crore to Rs 20,923 crore, while marginal standing facility borrowings declined from Rs 5,235 crore to Rs 1,000 crore. The three month PSU bank certificate of deposit rates were unchanged at 9.03%.The one year bank CD rates nudged lower by 2bps from 9.24% to 9.22%. RBI did not roll over 7 day term repo in anticipation of flows from government bond redemptions this week.
This week will see the announcement of the general elections results. A decisive mandate in favour of any single alliance will have the potential to take the bond yields lower by another 25 bps, closer to 8.50% mark. However a fractured mandate can trigger a mild sell-off that can cause the 9% mark to be tested again. Monthly inflation data to be released this week is expected to show a mild uptick in inflation, however the election outcome is likely to prevail over data points this week. As is clear, volatility is going to be order of the week given the huge event. Sans the event risk, slowing inflation and stabilising global market sentiments call for further gains in bonds for the week. Any violent sell-off in the event of a fractured mandate should be bought in. Short term money market rates are likely to remain lacklustre as they have been over the past month.
Mahendra Jajoo is Executive Director and CIO - fixed income at Pramerica Asset Managers
Business Standard
Sent from BlackBerry® on Airtel
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