Mumbai: Bond yields touched a one-year low on Tuesday. But that was transitory. They fell three basis points, yawned, and rose back to Tuesday’s level of 8.06% by the time of writing this blog.
It was hardly a commendable record and one should not read too much into it. After all, the handful of institutions that dominate this market is filled with naysayers who view the Budget numbers as “too good to be true.” Not that we disagree with them, though. Plainly put, India will borrow Rs 4.17 trillion in 2011-12, down from Rs4.47 rupees it borrowed this year. But oil prices seem to be missing from that equation.
So, there is a lack of stimulus in the bond market. Today’s brief rally could have been due to the auction of $2.5 billion of foreign institutional limit on government and foreign bonds on 15 March. Volumes also exceed Rs 7,000 crore which is about the average daily trade. But that didn’t prove enough to prop up bond prices. Remember, this $2.5 billion was auctioned earlier and remained unutilized.
What could the new triggers be?
The near-term stimulus to look for would be the new auction calendar and of course, a new 10-year benchmark paper. It’s March already and still there is no new benchmark 10-year yet!
Secondly, RBI will review its credit policy on 17 March. A more than expected rate hike could be enough to reverse the 10 bps drop in yields seen since the Budget.