Fixed income market to draw greater interest: Mahendra Jajoo

Fixed income markets remained buoyant this week as well with benchmark 10Y govt bond yield easing by another 5 bps to 7.87% with a parallel move in corporate bonds as well. Early signs of a downward trajectory in consumer price inflation emerged with CPI for march reported at 10.39%, the first downward move in more than a year.

As mentioned in our recent columns, commodity prices have been softening in recent times and are now beginning to reflect in data releases. That trend further strengthened this week with brent crude prices falling close to 102$/bl, a eight month low.

Similarly, most metal as well as food prices were also down for the week in international markets. In moe cheer for the market, the govt announced that final fiscal deficit number for FY 2012-13 may be closer to 5% as against a projection of 5.2% in budget. Govt also announced some early buy back of short term securities that would inject additional liquidity in markets.

IIP data

IIP data for Feb was at 0.6%,again reinforcing the need to push investment cycle through easy monetary policy. Thus, most news for the week further strengthened the case for another rate cut in May policy review. Money markets rates though inched up marginally as traders booked profit in this segment and repositioned in bond segment. Bond yields are likely to consolidate next week with some profit booking in early part of the week as they currently are at critical resistance level from where they turned back up twice in last two months.

Trend though after consolidation is expected to be for a string momentum for a push towards 7.75% levels as market begins to price in the next rate cut. Comments and statements from monetary authorities would indicate whether market will have the steam to breach the recent lows before the policy announcement.

With gold prices now in bear market, having corrected 20% from recent highs and property and equity markets remaining sluggish, fixed income markets will continue to draw greater interest from across investor segments.


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The author is head of fixed income at Pramerica Asset Managers