Bond yields tumble after shockingly negative IIP data

12 Dec 2011 Evaluate

Bond yields tumbled after the sharply shocking negative factory data reinforced hopes of a halt in a 13 month long interest rate hike cycle from the central bank in its upcoming monetary policy review on December 16, 2011.

In an unexpected and dramatic trend reversal, industrial output growth dropped in October to a worst than 28-month low at -5.1%, indicating a severe slowdown in the country’s growth trajectory. However, industrial output growth in September, which had been provisionally estimated at 1.9%, now stands to be revised to 2%. Growth in factory output, as measured in terms of the Index of Industrial Production (IIP), stood at -6% in October last year. During the April-October period this fiscal, IIP growth stood at 3.5% (YoY).

On the global front, US Treasuries prices fell on Friday and long bonds dropped over two points, as investors prepared for a heavy new issuance scheduled for the next week and a half. Meanwhile, Brent crude slipped below $108 on Monday, hit by a stronger dollar and investors' worries that European leaders' historic pact on closer fiscal union might not be enough to contain the region's debt crisis.

The yields on 10-year benchmark 8.79% - 2021 bonds 2021 bonds were trading at 8.45%, down from Friday’s close of 8.53%.

The benchmark five-year interest rate swaps were trading lower at 7.03% from Friday’s close of 7.07%.

The Reserve Bank of India has announced the auction of 91-day and 364-day Government of India Treasury Bills for notified amount of Rs 4,000 crore each. The auction will be conducted on December 14, 2011 using 'Multiple Price Auction' method.

Meanwhile, the Government of India have announced the sale of three dated securities for Rs 13,000 crore on December 2, 2011, which includes, (i) “7.83% Government Stock 2018” for a notified amount of Rs 4,000 crore (nominal) through price based auction, (ii) “8.79% Government Stock 2021” for a notified amount of Rs 6,000 crore (nominal) through price based auction and (iii) “New 19 year Government Stock 2030” for a notified amount of Rs 3,000 crore (nominal) through yield based auction. Moreover, the Government of Punjab has announced the sale of their 10-year State Development Loan (SDL) for an aggregate amount of Rs 350.000 crore (face value) through yield based auction using multiple price auction method.

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