Bond yields ease on bargain hunting; Moody’s stable outlook for India aids

26 Apr 2012 Evaluate

Bond yields eased as a recent tumble in debt prices lured bargain-hunting. Bond prices dropped drastically 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. Although the rating agency, reaffirmed sovereign credit rating at ‘investment grade’ but the recommendation that the prospect of a downgrade is now higher than before, mainly led to downfall in the debt market, which in turn today, made bond available at lucrative prices to investors.

However, investor’s appetite for safe heaven treasuries also improved after Moody's reiterated ‘stable' outlook on India. Moody's said the relatively strong GDP growth is likely to remain credit strength over the medium term. However, government deficits and debt ratios will also continue to surpass those of similarly-rated peers. It also said that, India's Baa3 government bond ratings incorporate credit strengths such as a diversified economic structure, strong actual and potential growth, a high domestic savings rate and a comfortable balance of payments position.

On the global front, US Treasuries prices were steady in Asia on Thursday, after dipping overnight as the US Federal Reserve gave no sign that it was in a hurry to make another round of bond purchases to stimulate the economy. Meanwhile, Brent crude slipped below $119 a barrel on Thursday, as easing concerns of a disruption in Iranian oil exports and high US crude stocks dampened optimism over a recovery in the US economy.

Back home, the yields on 10-year benchmark 8.79% - 2021 bonds were down 2 basis points at 8.61% from its previous close of 8.63% on bargain buying after recent fall in debt prices.

The benchmark five-year interest rate swaps were down 2 basis points at 7.64% from its previous close of 7.66% on Wednesday.

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).

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