Bond yields fall as industrial output registers negative growth for March

11 May 2012 Evaluate

Pre IIP data Scenario:

Bond yields were treading water ahead of Rs 15,000 crore worth debt sale auction, to be held in the later part of the day, while Rs 12,000 crore worth Open Market operations to be held by Reserve Bank of India, also weighed on the sentiment.

However, some cautiousness also came ahead of the release of IIP numbers. The street expectation is that industrial production (IIP) has likely grown around 1.5 percent year-on-year in March, significantly lower than February's 4.1 percent.

On the global front, US Treasury prices rose in Asia on Friday, as concerns about Europe's debt crisis continued and also as JPMorgan Chase's revelation of a huge trading loss sapped investors' appetite for risk. JPMorgan said on Thursday that a failed hedging strategy led to a trading loss of at least $2 billion. Meanwhile, Brent crude dropped below $112 a barrel on Friday, tracking losses in the euro amid a political deadlock in Greece that has renewed worries about the fate of the debt-laden euro zone and clouded the outlook for global oil demand.

Back home, the yields on 10-year benchmark 8.79% - 2021 bonds were trading flat at its previous close of 8.56% on Thursday.

The benchmark five-year interest rate swaps were trading flat at its previous close of 7.56% on Thursday.

The Government of India has announced the sale of four dated securities for Rs 15,000 crore, which include, (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 2,000 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 May 11, 2012 (Friday).

Consistent with the stance of monetary policy and based on the current assessment of prevailing and evolving liquidity conditions, the Reserve Bank has decided to conduct Open Market Operations by purchasing government securities for an aggregate amount of Rs 12,000 crore on May 11, 2012 through multi-security auction using the multiple price method.

Post IIP data Scenario:

Meanwhile, India’s index of industrial output (IIP), a key measure of industrial output contracting 3.5% in March 2012, against growth expectations of 1.6 per cent and 4.1 per cent in February, registered its first fall since October 2011, when it declined 4.7%.

The yields on 10-year benchmark 8.79% - 2021 bonds fell 8.53% from its previous close of 8.56% post release of IIP numbers.

The benchmark five-year interest rate swaps fell 2 basis point at 7.54% from its previous close of 7.56% on Thursday.

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