Bond yields ease to lowest since March 2010 on rate cut hopes

15 May 2013 Evaluate

Bond yields eased to the lowest since May 5, 2010, on rising hopes of rate cut post RBI Governor Subbarao said he would take note of falling inflation when discussing potential interest rate cuts. His comments come after headline wholesale inflation eased below 5% in April, dropping within the central bank's comfort zone for the first time in more than three years.

On the global front, prices of US Treasuries fell on Tuesday, lifting benchmark yields to seven week highs as investors instead directed money into riskier assets such as stocks. Meanwhile, Brent futures held steady above $102 a barrel on Wednesday as the US dollar eased, but gains were capped by forecasts of rising supplies from the United States amid a bleak outlook for global demand growth.

Back home, the yields on 10-year 8.79% - 2021 bonds were trading 4 basis points lower at 7.43% from its previous close of 7.47% on Tuesday.

The benchmark five-year interest rate swaps were trading 2 basis points lower at 6.70% from its previous close of 6.6.72% on Tuesday.

The Reserve Bank of India has announced the auction of 91 and 364-day Government of India Treasury Bills for notified amount of Rs 5,000 crore respectively. The auction will be conducted on May 15, 2013 using 'Multiple Price Auction' method.

Additionally, the Government of India have announced the sale (re-issue / issue) of four dated securities for Rs 15,000 crore on May 17, 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) “New 10 – year Government Stock 2023” for a notified amount of Rs 7,000 crore (nominal) through yield based auction; (iii) “8.97 percent Government Stock 2030” for a notified amount of Rs 2,000 crore (nominal) through price based auction, and (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 17, 2013 (Friday).

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