Stalled April month’s IIP growth cast no significant impact on bond yields

Pre IIP data Scenario:

Bond yields failed to gain momentum as the prices of safe haven instrument rose in light of global risk-averse sentiment and also cautiousness ahead of the release of April month IIP, due to release in the later part of the day. Industry’s connoisseurs largely expected industrial output rising 1.7% in April from a year earlier.

On the global front, benchmark US Treasury bonds rose in Asia on Tuesday, as investors sought safe-haven assets after European bailout for Spain's debt-stricken banks failed to persuade investors that the spread of the debt crisis in Europe will be arrested. Meanwhile, oil tumbled 3 percent on Monday, with US crude at its lowest for the year as fears that the euro zone debt crisis will swallow up more countries and threaten petroleum demand ate into the rally sparked by Europe's plan to rescue Spanish banks.

Back home, the yields on 10-year benchmark 8.79% - 2021 bonds fell 1 basis point at 8.32% from Monday's close of 8.33%.

The benchmark five-year interest rate swaps falls 6 basis points to 7.18% from its previous close of 7.24% on Monday.

Consistent with the stance of monetary policy and based on the current assessment of prevailing and evolving liquidity conditions, the Reserve Bank has decided to conduct Open Market Operations by purchasing government securities for an aggregate amount of  Rs 12,000 crore on June 12, 2012 through multi-security auction using the multiple price method.

The Reserve Bank of India has announced the auction of 364-day and 91-day Government of India Treasury Bills for notified amount of Rs 5,000 crore and Rs 10,000 crore respectively. The auction will be conducted on June 13, 2012 using 'Multiple Price Auction' method.

Post IIP data Scenario:

India's annual industrial output growth measured by index of industrial production (IIP), which showed a negligible growth of 0.1% for the month of April 2012 versus a contraction of (-) 3.5% in March and remained way below the street expectation of 1.8%, chorused the need for strong stance from the Reserve Bank of India (RBI) in its upcoming monetary policy review on June 18, 2012. However, the reaction to the IIP data was a muted one.

The yields on 10-year benchmark 8.79% - 2021 bonds fell 2 basis points at 8.31% from Monday's close of 8.33%.