INRBonds - report

Yield curve has been steep for a while

In the last few months, gsec yields have risen by 60bps to 70bps across the yield curve. Since the time RBI stopped protecting yields through Gsec purchases, auction cancellations and devolvements, g-sec yields have risen and stabilised at higher levels.

5 year benchmark bond is trading around 5.7% to 5.8% levels, 10 year bond at 6.25% to 6.35% levels, 15 year bond at 6.70% to 6.80% levels and 30, 40 year bonds at 6.9% to 7.1% levels. 10 year SDL yields have been in the range of 6.85% to 7% levels.

At these levels, 5 year to 40 year bonds are trading at 170bps to 300bps over the repo rate at 4%. The steepness of the curve suggest that there is lots of room for repo rates to rise.

However, when repo rates actually rise, maybe early 2022, will gsec yields react sharply upwards or will they have muted reaction?

Normal market behaviour will make gsec yields rise before rate hikes and unless there is huge shock on inflation or accelerated rate hikes, gsec yields will largely stay at higher levels and not spike. The question is whether current levels of yields have already factored in rate hikes?

A few rate hikes may be factored in at current levels of yields but future direction will depend on other factors like government borrowing, inflation expectations, and global risk aversion. Political factors too could impact the yields.

Benchmark spread movements

Date	3-Year(bps)	5-Year(bps)	10-Year(bps)	15-Year(bps)	30-Year(bps)	40-year(bps)
01-06-21	12	137	202	258	295	295
02-06-21	10	135	201	257	295	294
03-06-21	10	132	200	256	296	295
04-06-21	11	134	203	258	297	297
07-06-21	7	131	202	257	282	296
08-06-21	9	127	201	255	292	294
09-06-21	6	128	202	255	278	292
10-06-21	5	126	202	253	294	294
11-06-21	1	126	201	252	294	293
14-06-21	2	130	200	254	295	294
15-06-21	5	140	204	256	298	297
16-06-21	11	145	205	258	300	299
17-06-21	14	145	202	257	300	299
18-06-21	14	141	201	262	300	299
21-06-21	16	146	203	258	285	301
22-06-21	17	148	202	264	304	303
23-06-21	16	151	202	264	306	304
24-06-21	17	149	201	264	300	305
25-06-21	16	156	203	260	312	308
28-06-21	19	161	206	261	314	312
29-06-21	21	155	204	268	310	310
30-06-21	18	160	205	268	312	310
01-07-21	20	158	204	261	308	310
02-07-21	18	161	206	270	314	312
05-07-21	19	161	209	268	306	312
06-07-21	19	169	218	268	320	320
07-07-21	22	164	216	264	318	318
08-07-21	20	155	212	275	315	316
09-07-21	21	159	219	285	308	318
12-07-21	21	162	222	265	319	318
13-07-21	16	158	220	264	319	317
14-07-21	14	152	220	262	310	318
15-07-21	10	152	212	287	310	316
16-07-21	5	168	213	288	308	320
19-07-21	4	145	213	288	308	318
20-07-21	0	141	212	262	306	316
22-07-21	-1	143	214	262	309	318
23-07-21	-1	169	216	265	309	316
26-07-21	109	168	217	290	310	315
27-07-21	110	169	218	292	310	315
28-07-21	107	171	219	293	310	316
29-07-21	106	172	220	294	313	316
30-07-21	102	173	220	266	311	317
02-08-21	100	173	220	267	306	313
03-08-21	98	173	220	268	306	313
04-08-21	96	171	220	268	305	315
05-08-21	94	171	221	283	305	313
06-08-21	102	178	223	286	310	318
09-08-21	98	173	222	288	310	317
10-08-21	100	174	223	288	311	319
11-08-21	100	175	224	267	312	320
12-08-21	99	174	223	268	311	320
13-08-21	96	173	224	267	311	320
17-08-21	93	169	223	271	311	318
18-08-21	87	166	223	288	311	320
20-08-21	90	169	223	265	309	317
23-08-21	92	169	224	289	307	315
24-08-21	93	170	225	265	306	316
25-08-21	91	169	224	265	305	314
26-08-21	89	170	225	265	306	315
27-08-21	96	168	225	264	303	312
30-08-21	86	165	222	264	300	310
31-08-21	83	165	222	286	300	309
01-09-21	82	161	220	286	297	307
02-09-21	80	159	217	263	294	298
03-09-21	80	157	216	260	295	298
06-09-21	81	160	217	258	295	298
07-09-21	86	163	219	262	297	296
08-09-21	86	161	219	261	297	298
09-09-21	84	161	218	260	295	296
13-09-21	86	163	219	262	295	294
14-09-21	87	164	220	286	294	293
15-09-21	84	160	216	260	293	291
16-09-21	84	160	217	257	291	286
17-09-21	85	162	217	257	290	288
20-09-21	77	156	214	256	287	289
21-09-21	85	159	212	256	288	289
22-09-21	84	159	214	256	285	294
23-09-21	85	158	214	256	285	296
24-09-21	91	165	218	257	289	297
27-09-21	95	169	221	287	292	297
28-09-21	96	167	223	260	293	297
29-09-21	93	165	221	260	293	297
30-09-21	93	166	222	260	293	297
01-10-21	95	169	224	262	295	300
04-10-21	97	168	225	262	296	302
05-10-21	97	169	226	264	297	304
06-10-21	98	171	228	265	299	304
07-10-21	99	171	227	264	298	310
08-10-21	99	171	232	269	303	314
11-10-21	102	173	234	272	305	315
12-10-21	99	170	233	270	303	314
13-10-21	98	166	231	269	301	314
14-10-21	95	167	233	270	302	316
18-10-21	103	175	239	261	307	326
20-10-21	108	174	237	275	310	315
21-10-21	107	171	234	269	303	311
22-10-21	110	173	235	273	306	312
25-10-21	109	172	235	273	308	326
26-10-21	111	173	236	274	305	310
27-10-21	110	172	234	273	304	309
28-10-21	113	173	237	274	303	305
29-10-21	112	176	239	273	305	305
01-11-21	114	176	239	283	305	306
02-11-21	113	173	236	281	304	306
03-11-21	100	173	236	279	303	307
08-11-21	95	167	230	273	297	301
09-11-21	103	167	229	269	297	297
10-11-21	107	169	234	275	297	293
11-11-21	110	172	237	278	300	295
12-11-21	112	172	237	278	299	298
15-11-21	95	169	234	276	296	296
16-11-21	110	171	236	278	297	297
17-11-21	109	168	236	276	287	296
18-11-21	109	167	235	269	285	294
22-11-21	111	169	235	275	287	297
23-11-21	111	170	236	277	288	296
24-11-21	114	170	237	268	287	295
25-11-21	114	169	237	277	287	296
26-11-21	111	165	233	274	284	295

Government bonds, SDL and OIS yield movements

During last week, 6.10% 2031 yield declined by 2 bps to 6.33% while 5.85% 2030 yield decreased by 10 bps to 6.28%. 5-year benchmark bond, 5.63% 2026 yield lost 2 bps to 5.65%. 6.64% 2035 yield stood unchanged at 6.76%. 6.57% 2033 yield rose by 5 bps to 6.74%. Long-term paper, 7.16% 2050 yield came down by 2 bps to 6.97%.

The spread of 10-year bond over 5-year bond unchanged at 68 bps from previous week. The 15-year benchmark over 10-year benchmark spread increased to 41 bps from 34 bps, while 30-year benchmark over 10-year benchmark spread rose to 51 bps to 50 bps on weekly basis.

Average 10-year SDL auction cut-off came down to 6.87% from 6.9% in previous week while spread came down to 51 bps from 54 bps in previous week.

On weekly basis, 1-year OIS yield declined by 2 bps to 4.30% while 5-year OIS yield decreased by 6 bps to 5.41%.

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

Is the Gsec curve priced for rate hikes?

Team INRBonds