Bond yields edge lower due to sharper than expected July CPI data

13 Aug 2014 Evaluate

Bond yields edged lower amid caution after CPI rose more than expected in July, hitting a two-month high. Limiting central bank’s scope for easing policy rates, provisional annual inflation rate based on all India general Consumer Price Index (CPI) (Combined) rose more than expected at 7.96% in July as compared to 29 months low of 7.31% in June and 9.64% in the July, 2013. Yields also edge lower tracing sharp drop in brent crude prices. Further, easing liquidity condition also supported the sentiment after RBI’s conducted 7 day repo auction for a notified amount of Rs 15,000 crore, was oversubscribed, with RBI allotting amount to the tune of Rs 15,007 crore.

On the global front, U.S. Treasury debt yields rose on Tuesday as traders sold some bond holdings in advance of a combined $40 billion in longer-dated supply, which some traders worry might not lure strong demand due to their low yields. Meanwhile, brent crude slipped to thirteen months low, sub $103 a barrel on Wednesday as ample supplies countered any disruption risks posed by lingering tensions in Iraq and Libya.

Back home, the yield new benchmark 8.40%- 2024 bond was trading 3 basis points lower at 8.59% from its previous close of 8.62% on Tuesday.

The yields on existing benchmark 2023, 10-year Government Stock was trading 2 basis points lower at 8.83% from its previous close of 8.85% on Tuesday.

The benchmark five-year interest rate swaps were trading unchanged at its Tuesday’s close of 8.14%.

The Government of India announce the sale of three dated securities for Rs 8,000 crore on August 14, 2014, including (i) 8.40% Government Stock 2024 for a notified amount of Rs 4000 crore, (ii) 8.32% Government Stock 2032 for a notified amount of Rs 2000 crore and lastly (iii) 9.23% Government Stock 2043 for a notified amount of Rs 2000 crore. The auctions will be conducted using multiple price method. Up to 5% of the notified amount of the sale of the stocks will be allotted to eligible individuals and Institutions as per the Scheme for Non-Competitive Bidding Facility in the Auction of Government Securities.

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