Bond yields drop on weak factory output data

09 Aug 2012 Evaluate

Bond yields declined after factory output unexpectedly registered a negative growth of 1.8% in June, confirming a further slowdown in the economy. However, yields recovered from the session's low of 8.10% since profit-booking helped counterbalance some of the safe-haven bids that raised bond prices.

Putting up a pathetic show, India’s index of industrial production (IIP), a key measure of industrial output shockingly registered a negative growth of 1.8% in June 2012 at 168.3, from the same period in the past fiscal, as against the expectations of 1% and also lower than 2.4% growth figure for the month of May, which was later revised a tad to 2.5%.

On the global front, US 10-year Treasury bond yields hovered at two-month highs on Thursday after an auction of $24 billion of 10-year notes drew tepid demand, and as investors kept shifting towards riskier assets on some signs of stability in the euro zone. Meanwhile, Brent crude stayed above $112 a barrel on Thursday on hopes of more stimulus from China to support economic growth and fuel demand at the world's second largest oil consumer.

The yields on 10-year benchmark 8.79% - 2021 edged lower by 2 basis points at 8.12% from its previous close.

The benchmark five-year interest rates were trading higher by 1 basis point at 7.05% from its previous close.

The Government of India have announced the sale (re-issue) of four dated securities for Rs 15,000 crore on August 10, 2012, including (i) “8.07% Government Stock 2017-JUL” for a notified amount of Rs 4,000 crore (nominal) through price based auction; (ii) “8.15% Government Stock 2022” for a notified amount of Rs 6,000 crore (nominal) through price based auction; (iii) “8.97% Government Stock 2030” for a notified amount of Rs 3,000 crore (nominal) through price based auction; and (iv) “8.33% Government Stock 2036” for a notified amount of Rs 2,000 crore (nominal) through price based auction. The auctions to be conducted using uniform price method will be held on August 10, 2012 (Friday).

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