Fixed income markets carried forward the positive momentum of the previous week with bond and money market yields easing further although marginally. Benchmark 10-year yields eased by another 4 basis points to 7.74%, although not without some volatility. After rallying on first two working days, some profit booking was witnessed later in the week with bond yields wiping out the gains for the week. However, a late surge in closing hours of the week ensured that bond yields closed lower by 4 bps for the week. Similar movements were observed in other segments with corporate bonds and money market rates ending lower by around 5 bps.
After a sharp fall in the previous week, gold and oil prices bounced back last week strongly. While gold surged well past the so called bear market threshold of $1400/oz, oil prices settled well above the $100 mark. That shows the inherent volatility in commodity prices and the suggestion that while direction for the commodity prices remains downward, it is too early perhaps to get complacent on that front. Global markets also remained in a tight range waiting for a fresh direction to emerge. With the classic adage of "Sell in May" and with markets at a rich valuation may spark a corrective sell-off next month raising fresh concerns on fresh FII flows.
Even though RBI is set to cut rates by 25 bps in this week’s policy review, heavy supplies in May and June and the fact the bonds are very richly priced currently suggest a cautionary stance for now. One has to closely watch RBI’s accompanying comments and the movement in commodity prices for further guidance.
The author is head of fixed income at Pramerica Asset Managers
