Bond yields set to fall

Slowing CPI inflation to help bond street

The Reserve Bank of India's (RBI) decision to defer the auction of government bonds for a notified amount of Rs 15,000 this Friday is set to boost bullish bond market sentiments further. Besides that the Consumer Price Index (CPI) inflation for December eased to a three-month low.

 

“On review of the Government of India’s (GoI) cash position and funding requirement, it has been decided, in consultation with GoI, to defer the auction of GoI dated securities amounting to Rs 15,000 crore scheduled to be held on January 17,” said RBI on Monday.

 

As per the issuance calendar of marketable dated securities released in September, the borrowing programme of the government was to get over in the first week of February. 

 

“The yield on the 10-year benchmark government bond may move down by 10-15 basis points on Wednesday,” said Siddharth Shah, vice president, STCI Primary Dealer. The yield on the 8.83 per cent 2023 government bond ended at 8.71 per cent on Monday compared with previous close of 8.76 per cent on Friday. Tuesday is a bank holiday due to which the bond market is shut.

 

“The auction has been deferred and not canceled. This auction will possibly be held by the end of this month or may be next month. The fall in yields be more because of fall in CPI inflation. Possibly there may be a pause in this month's monetary policy review,” said Ramanathan K, executive director and chief investment officer, ING Mutual Fund. RBI will review the monetary policy on January 28. 

 

A month after touching a record high, CPI inflation came down to a three-month low of 9.87 per cent in December. The inflation had touched 11.16% in the previous month.

 

But few traders believe the auction has been deferred in order to create a conducive environment for the Rs 50000 crore debt-switch programme to happen in the current fiscal itself. Under the debt switch plan of Rs 50,000 crore stated in the Union Budget 2013-14, the government announced a plan to buy short-dated debt, and in turn sell longer-dated bonds. This is aimed at spreading out redemptions of debt to later years. "Whatever it is, we are working on it (debt switch) in a non-disruptive manner,” said RBI, deputy governor, HR Khan earlier this month.