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20 November 2017
 |
RBI (The Total Investment & Insurance Solutions)
Indian
bond yields fell for the second straight day on Monday as traders took comfort
from the central bank`s unexpected decision to cancel a scheduled sale of bonds
via open market operation (OMO) post market hours on Friday.
The bond market, which got a shot in the arm
on Friday after Moody`s upgraded India`s sovereign rating pared almost all the
gains on that day, resumed the rally on Monday boosted by the cancellation of
OMO sale which to traders was a signal that the central bank was not happy with
high yields.
The Reserve Bank of India said on Friday it
was withdrawing the OMO sale that was scheduled for Nov. 23 due to "recent
market developments and based on a fresh review of the current and evolving
liquidity conditions".??
"It is definitely a yield signal even if
they say that it is due to evolving liquidity situation because no drastic
change has happened in liquidity," said the chief dealer at a large
state-run bank. The Total Investment
& Insurance Solutions
"We have always been saying there is no
reason for bonds to be so negative as fiscal slippage is unlikely to be very
high and inflation won`t shoot through the roof." The Total Investment & Insurance Solutions
As of 0454 GMT, the benchmark 10-yr bond
yield fell to as much as 6.92 percent, lowest since November 10. It closed at
7.05 percent on Friday. Meanwhile the rupee weakened to 65.11 to the dollar
from the previous close of 65.02 as the greenback gained on concerns of
political uncertainty Germany.
Back home, the two-day bond rally has been a
much-awaited relief for several investors who are sitting on large piles of
losses after bond yields rose as much as 58 basis points since June-end as rate
cut hopes waned on high inflation and potential fiscal slippages. The Total Investment & Insurance
Solutions
However, many traders expect this rally to
fizzle out as concerns over rising inflation, hawkish central bank rhetoric and
fiscal discipline resurfaces.
"How long and how much can the RBI signal
on bond yields? Eventually inflation will rise post April to around 5 percent
and then market will be expecting a rate hike," said a market participant
at a primary dealership.The Total
Investment & Insurance Solutions
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