Bond Market Snapshot For The Week
· Gross Government borrowing at Rs 7.8 trillion and net borrowing at Rs 5.45 trillion for FY 2021
· RBI likely to keep rates stable in its policy this week
· 10-year benchmark bond, 6.45% 2029, yield rose by 2 bps to 6.60%
· 5 year OIS yields came down by 11 bps to 5.42%
· Liquidity continues to be in a huge surplus of Rs 4.20 trillion
The government is borrowing Rs 700 billion more in fy 20 as compared to last year but the higher number is unlikely to take up bond yields. RBI will look at the 3.5% of GDP fiscal deficit number for fy 20 as a benign number given the need for the government to spend on a weak economy. The current corono virus issue will also prey in RBI’s mind in setting its monetary policy and while it keeps rates steady this week, it will maintain an accommodative stance.
RBI would help support the government through operation twists and try and keep bond yields down at the medium and longer ends of the yield curve.
OIS yields will fall on the back of sharp fall in US treasury yields. Read our global bond and currency market analysis for details.
Credit spreads could come under pressure as FII ‘s sell corporate bonds on risk aversion and weak economic outlook
The benchmark 10-year bond, the 6.45% 2029 bond, yields increased by 2 bps to 6.60% on a weekly basis. The benchmark 5-year bond, the 6.18% 2024 bond, yield rose marginally by 1 bps to 6.40% while 7.17% 2028 bond yield increased by 3 bps to 6.85% and the 6.68% 2031 yield level rose by 3 bps 6.92% on a weekly basis.
One-year OIS yield came down by 5 bps to 5.27% while the five-year OIS yield declined by 11 bps to 5.42% on a weekly basis.
System liquidity as measured by bids for Repo, Reverse Repo, Term Repo and Term Reverse Repo in the LAF (Liquidity Adjustment Facility) auctions of the RBI and drawdown from Standing Facility (MSF or Marginal Standing Facility) was in surplus of Rs 4198 billion as of 31st January 2020. Liquidity was in a surplus of Rs 3601 billion as of 24th January 2020.