G-sec yields surge on multiple concerns
5,10-,15- and 30-year bond yields surged by 20bps to 30bps last week as the government announced record borrowing of over Rs 14 trillion gross and Rs 11 trillion net against a fiscal deficit of 6.4% of GDP. States too are likely to borrow around Rs 9 trillion against 4% of gross states fiscal deficit.
The heavy supply of bonds comes amid a time of Fed and other global central banks tightening on the back of high wage push inflation. US treasury yields surged higher on rising wages in the US.
Crude oil prices climbed to 8-year highs to USD 90/bbl on supply concerns and this will feed into domestic inflation where core CPI is sticky at over 6%.
RBI needs to address borrowing, effect of Fed rate hikes on market stability and inflation concerns to allay bond market fears. G-sec yields will surge further if market concerns are not addressed.
US Nonfarm payrolls surged by 467,000 for the month against the expectation of 150,000 jobs addition, while the unemployment rate edged higher to 4%, according to the Bureau of Labor Statistics. Data for December was revised higher to show 510,000 jobs created instead of the previously reported 199,000.
Government bonds, SDL and OIS yield movements
Last week, 6.54% 2032 paper yield rose by 11 bps to 6.88% while 6.10% 2031 yield rose by 15 bps to 6.90%. 5-year benchmark bond, 5.63% 2026 yield increased by 7 bps to 6.05%. 6.64% 2035 yield gained 10 bps to 7.28%. Long-term paper, 7.16% 2050 yield rose by 12 bps to 7.45%.
The spread of 10-year bond over 5-year bond rose to 85 bps from 77 bps in previous week. The 15-year benchmark over 10-year benchmark spread declined to 37 bps from 45 bps while 30-year benchmark over 10-year benchmark spread decreased to 54 bps from 57 bps on weekly basis.
Average 10-year SDL auction cut-off declined to 7.21% from 7.27% in previous week while spread came down to 36 bps from 61 bps(benchmark yield rose to 6.85% from 6.66%)
On weekly basis, 1-year OIS yield rose by 6 bps 4.55% while 5-year OIS yield increased by 21 bps to 5.91%.
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