Bond yields ease on follow on buying after govt cuts withholding tax on debt

02 May 2013 Evaluate

Bond yields were trading tad lower tracing the lower Brent crude prices and also on follow on buying after government slashed withholding tax on foreign investments in rupee denominated government and corporate debt. The government, in a bid to draw further inflows to bridge its current account deficit and polish its reformist credentials, has cut the tax on interest payments to foreigners on government and corporate debt to 5 per cent from up to 20 per cent for a two-year period. Further, some buying was also witnessed as investors awaited RBI report on economy, which is usually released a day prior to RBI’s policy review.

On the global front, US 10-year Treasuries edged down in Asian trading on Tuesday, taking their cue from firmer stocks but mostly sticking close to recent levels as investors awaited key events later this week. Meanwhile, Brent crude steadied near $100 a barrel on Thursday, holding close to two-week lows hit in the previous session, as mounting uncertainties about the US and Chinese economies muddied the outlook for oil demand from the top two consumers.

Back home, the yields on 10-year 8.79% - 2021 bonds were trading 4 basis points lower at 7.69% from its previous close of 7.73% on Tuesday.

The benchmark five-year interest rate swaps were trading 4 basis points lower at 6.86% from its previous close of 7.00% on Tuesday.

Additionally, Government of India have announced the sale (re-issue) of four dated securities for Rs 15,000 crore on May 3, 2013, which includes, (i) “7.83 percent Government Stock 2018” for a notified amount of Rs 3,000 crore (nominal) through price based auction; (ii) “8.33 percent Government Stock 2026” for a notified amount of Rs 6,000 crore (nominal) through price based auction; and (iii) “8.97 percent Government Stock 2030” for a notified amount of Rs 3,000 crore (nominal) through price based auction, (iv) “8.83 percent Government Stock 2041” for a notified amount of Rs 3,000 crore (nominal) through price based auction. The auctions will be conducted using multiple price method. The auctions will be conducted by the Reserve Bank of India, Fort, Mumbai on May 3, 2013 (Friday).

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