6.54% 2032 bond – where to from here?
The cut off yield for the new 10 year gsec at 6.54% was the highest in 2 years, since that advent of covid in 2020. The other cut offs have been 6.1%, 5.85%, 5.77%. The yield on the 10 year bond has risen by over 80bps from lows seen over the last 2 years.
Many factors have contributed to the rise in yields including relentless supply from the government as fiscal deficit ballooned on covid measures. Sharp rise in inflation globally too contributed to the rise in yields. Going forward, inflation, rate hikes and supply will determine yield trends on the 10 year bond.
In the next few months, the factors driving yields are negative. Government will most probably keep borrowing high in the budget for fiscal 2022-23 as it looks to keep the growth momentum.
RBI is most likely to sound out rate hikes this year as it worries about the spillover effects of global inflation. US and Eurozone inflation are at multi decade highs and Fed is now on inflation control as are other global central banks.
Given prospects of supply, rate hikes and inflation, 6.54% 2032 gsec yield is likely to trend higher.
Date of Issue | Name of Paper | Coupon (%) | Outstanding (Rs billion) (as of 10th Jan 22) |
11-May-20 | 5.79% GS 2030 | 5.79 | 1,116.18 |
03-Aug-20 | 5.77% GS 2030 | 5.77 | 1,230.00 |
01-Dec-20 | 5.85% GS 2030 | 5.85 | 1,192.70 |
12-Jul-21 | 6.10% GS 2031 | 6.10 | 1,480.00 |
Government bonds, SDL and OIS yield movements
During last week’s auction, new GS 2032 paper cut-off stood at 6.54%. On weekly basis, 6.10% 2031 yield rose by 4 bps to 6.58%. 5-year benchmark bond, 5.63% 2026 yield declined by 3 bps to 5.88%. 6.64% 2035 yield stood steady at 7.02%. Long-term paper, 7.16% 2050 yield rose by 1 bp to 7.24%.
The spread of 10-year bond over 5-year bond rose to 70 bps from 63 bps in previous week. The 15-year benchmark over 10-year benchmark spread declined to 45 bps from 48 bps, while 30-year benchmark over 10-year benchmark spread decreased to 66 bps from 69 bps on weekly basis.
Average 10-year SDL auction cut-off rose to 7.14% from 7.13% in previous week. However, spread declined to 57 bps from 61 bps in previous week as g-sec yield rose to 6.57% from 6.52% during same period.
On weekly basis, 1-year OIS yield declined by 3 bps 4.34% while 5-year OIS yield decreased by 3 bps to 5.55%.
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