Bond yields rise after S&P slashes India’s outlook to negative

25 Apr 2012 Evaluate

Bond yields rose after ratings agency Standard & Poor's (S&P) cut its outlook on India to negative, igniting fears that it would lead to an actual ratings downgrade. The ratings agency, however, reaffirmed sovereign credit rating at investment grade but recommended that the prospect of a downgrade is now higher than before.

The downgrade could also impact treasury bonds, as it is linked to government finances. Bond yields rise since a lowered sovereign outlook makes the bonds riskier and the market will demand better yields for holding them.

On the global front, US government debt prices fell on Tuesday as solid demand for new Spanish and Dutch debt soothed some contagion worries from Europe, but mixed US data reinforced concerns economic growth is sputtering after a solid first quarter. Meanwhile, Brent crude stayed above $118 a barrel on Wednesday as investors marked time ahead of the outcome of a policy meeting by the US Federal Reserve, with some investors hoping to hear hints of further monetary easing.

Back home, the yields on 10-year benchmark 8.79% - 2021 bonds were up by 4 basis points to 8.63% from its previous close on Monday.

The benchmark five-year interest rate swaps were up by 5 basis points to 7.65% from its previous close of 7.60%.

The Government of India have announced the sale (re-issue) of four dated securities for Rs 16,000 crore on April 27, 2012 (i) “8.24 percent Government Stock 2018” for a notified amount of Rs 4,000 crore (nominal) through price based auction, (ii) “8.79 percent Government Stock 2021” for a notified amount of Rs 7,000 crore (nominal) through price based auction (iii) “8.28 percent Government Stock 2027” for a notified amount of Rs 2,000 crore (nominal) through price based auction and (iv) “8.33 percent Government Stock 2036” for a notified amount of Rs 3,000 crore (nominal) through price based auction. The auctions will be conducted using uniform price method. The auctions will be conducted by the Reserve Bank of India, Fort, Mumbai on April 27, 2012 (Friday).

Additionally, the Reserve Bank of India has announced the auction of 91-day and 182-day Government of India Treasury Bills for notified amount of Rs 9,000 crore and Rs 5000 crore respectively. The auction will be conducted on April 25, 2012 using 'Multiple Price Auction' method.

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