Bonds to trade at 8.15-8.25%: Kotak Mahindra Bank

Advanced countries are running out of options for stimulating their economies due to growing debt burden coupled with persistent low growth. As a result, overvalued commodities prices are expected to moderate. Brent crude price may trade in a range of $102-110 with a bearish bias. And the 10-year US Treasury is expected to remain around 2% levels.

Traders expect Q1 GDP for FY12 to be around 7.80%. WPI is expected to show a downward trend from December 2011 due to base effect. For the time being, government borrowing for Q2 is expected to remain unchanged.

Minutes of the July 20, 2011 meeting of the Technical Advisory Committee on Monetary Policy also indicates most members were in favour of a pause. The global situation has deteriorated further since then. Hence, the odds of a pause in monetary tightening by RBI on September 16, 2011 have increased significantly. The 10-year 7.80% 2021 is expected to trade in a range of 8.15-8.25% with a downward bias. Bond swap spread is expected to widen.


Mohan Shenoi is Head, Treasury Kotak Mahindra Bank