Bond yields slump ahead of Q4 GDP data

31 May 2012 Evaluate

Bond yields after hitting to three week’s high in the previous session, eased on Thursday, ahead of key economic growth data that would provide clues on the outlook for interest rates. Industry’s aficionado expect India's annual economic growth to hold steady in the January-March quarter at 6.1% as compared to 7.8% for the quarter ended March 31, 2011, in the backdrop of global economic slowdown, government policy paralysis and a record low currency suggesting little chance of up-take in the current quarter. Further, global risk aversion on account of fears of Europe’s debt crisis is morphing from Greece to engulf bigger economies such as Spain and Italy also undermined sentiment.

Meanwhile, India's annual economic growth slumped to a nine-year low at 5.3 percent in the January-March quarter of the financial year as against 7.8 per cent in the same quarter last year, on account of contraction in manufacturing sector and depreciating rupee.

On the global front, US Treasury bond yields creeping higher in Asia, pushed 10-year yields deeper into levels not seen in at least 60 years, as rising European borrowing costs spurred investors to seek safe-haven fixed income assets. Meanwhile, Brent crude dropped below $103 per barrel on Thursday, as investors made a beeline for the egress with the euro zone debt crisis pounding large.

The yields on 10-year benchmark 8.79% - 2021 bonds were trading 3 basis points lower at 8.49% from its previous close of 8.46%.

The benchmark five-year interest rate swaps dropped 3 basis points to 7.40% from its previous close of 7.37% on Wednesday.

Back home, the Government of India after market hours on Monday announced the sale (re-issue) of four dated securities for Rs 15,000 crore, which includes (i) “8.19% Government Stock 2020” for a notified amount of Rs 4,000 crore (nominal) through price based auction, (ii) “9.15% Government Stock 2024” for a notified amount of Rs 7,000 crore (nominal) through price based auction (iii) “8.28% Government Stock 2032” for a notified amount of Rs 2,000 crore (nominal) through price based auction and (iii) “8.83% Government Stock 2041” 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 June 01, 2012 (Friday).

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