10-year yield to touch 8.40% in six months
The first auction of the financial year 2011-12 would be held this week and we expect aggressive bidding for the new 10-year govt bond.
Updated:
Deepali Bhargava,
Chief Economist, ING Vysya Bank
Bonds remained range bound last week as SLR buying by banks capped the spike in yields and borrowing calendar did not bring about negative surprises. The first auction of the financial year 2011-12 would be held this week and we expect aggressive bidding for the new 10-year government bond, which would entail a lower coupon.
We expect the range to be 7.85-8.00%. CD rates have moderated from their peaks as the worst on mid-March liquidity settles. We expect money market rates to correct further once the volatility in the year-end flows abate and liquidity improves.
Seasonal slack in credit demand and FY11 government spending seeping into the banking system this week will be positive for liquidity. We expect liquidity to hover around INR -550 bn by the end of April. This week is expected to see a turn in the rate cycle in eurozone. This, together with a consistent rise in US yields, may be the game changer.
In the long-term (H2FY12), following fiscal slippage, we expect the demand-supply balance for government bonds to be tilted in favour of excess supply. We expect 10-year to tread towards 8.40% on a 6-month horizon as calibrated rate hikes, rising inflation and excess supply pressure take a toll on the bond market.
Chief Economist, ING Vysya Bank
Bonds remained range bound last week as SLR buying by banks capped the spike in yields and borrowing calendar did not bring about negative surprises. The first auction of the financial year 2011-12 would be held this week and we expect aggressive bidding for the new 10-year government bond, which would entail a lower coupon.
We expect the range to be 7.85-8.00%. CD rates have moderated from their peaks as the worst on mid-March liquidity settles. We expect money market rates to correct further once the volatility in the year-end flows abate and liquidity improves.
Seasonal slack in credit demand and FY11 government spending seeping into the banking system this week will be positive for liquidity. We expect liquidity to hover around INR -550 bn by the end of April. This week is expected to see a turn in the rate cycle in eurozone. This, together with a consistent rise in US yields, may be the game changer.
In the long-term (H2FY12), following fiscal slippage, we expect the demand-supply balance for government bonds to be tilted in favour of excess supply. We expect 10-year to tread towards 8.40% on a 6-month horizon as calibrated rate hikes, rising inflation and excess supply pressure take a toll on the bond market.
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Uncertainty on both the timing of rate hike and further liquidity moderation may imply higher spread volatility going forward. But nearterm easing in 10-year may follow with the introduction of a new 10-year paper.Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
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