19 Sept 2021

G-sec yield curve to factor in rate hikes next year-Weekly Fixed Income Analysis

RBI recently stated that the inflation trajectory is shifting down more favorably than initially anticipated. As supply conditions return to normal and productivity gains the bank expects sustained decline in core inflation. This will allow the RBI to maintain its accommodative stance.

author dp
Team INRBonds
Share via:LinkedIn LogoTwitter logo

G-sec auctions going through smoothly

The last few government bond auctions went through smoothly with no devolvement on the underwriters. The new 10 year benchmark bond, the 6.10% 2031 bond has seen market level cut off in the last 2 auctions with good demand for the bond. Prior to the last 2 auctions, the 10 year benchmark bond auction saw constant cancellation or devolvement by the RBI in order to protect the yields.

State loan auctions too saw improved sentiments with yields in SDLs trending down in the last 3 auctions.

Overall bond market sentiments have improved in the last few weeks on expectations of improved government finances with corporate profits looking healthy as seen by the sustained rally in Sensex and Nifty that are trading at record highs.

Inflation too has provided relief with CPI trending down in the last 2 months and core inflation too coming off to below 6%. RBI also sounded optimism on inflation leading to gsec yields coming off.

 

 

Going forward, gsec yields should see stability and markets will start to expect policy normalisation next year. This will help flatten the yield curve that is steep at present  

 

 

Government bonds, SDL and OIS yield movements        

During last week, 6.10% 2031 yield declined by 1 bps to 6.17% while 5.85% 2030 yield decreased by 1 bps to 6.16%. 5-year benchmark bond, 5.63% 2026 yield rose by 1 bps to 5.62%. 6.64% 2035 yield declined by 6 bps to 6.66%. 6.57% 2033 yield came down by 3 bps to 6.57%. In the same line, long-term paper, 7.16% 2050 yield lost 6 bps to 6.93%

The spread of 10-year bond over 5-year bond came down to 55 bps from 57 bps in previous week.  The 15-year benchmark over 10-year benchmark spread declined by 2 bps to 40 bps, while 30-year benchmark over 10-year benchmark spread decreased by 4 bps to 73 bps on weekly basis.

Average 10-year SDL auction cut-off declined to 6.87% from 6.88% in previous week while spread declined to 67 bps from 69 bps in previous week.

On weekly basis, 1-year OIS yield remained unchanged at 3.86% while 5-year OIS yield increased by 4 bps to 5.17%.

 

We would love to hear back from you. Please Click here to share your valuable feedback