G-sec yields fall on expectations of RBI support
10-year G-sec yields fell sharply last week, as traders covered shorts in anticipation of RBI intervention in the market through OMOs or operation twists. There were rumors of such actions, but no action was announced.
The 10-year yield is likely to trend higher as RBI is supporting the INR that is trending at record lows. RBI selling USD will take out money from the system and also give expectations of 75bps rate hike in June, given that a weak INR in the face of high inflation will further cause discomfort to policy makers.
The continuous supply of bonds from the government will not make it easy for the RBI to protect yields and markets will push yields higher and higher until the macro environment stabilises.
FII Outflow
During FY23(as of 13th May 22), FII sold equities worth of USD 5510 million while sold USD 1143 million of debt in domestic market. During May 23, FII sold equities valued USD 3274 million while sold USD 564 million woth debt(as of 13th May).
Government bonds, SDL and OIS yield movements
Last week, 10-year benchmark 6.54% 2032 paper yield declined by 13 bp to 7.32%. The 5-year benchmark bond, 6.79% 2027 yield came down by 12 bps to 7.15%. 6.64% 2035 yield decreased by 13 bps to 7.5%. Long-term paper, 6.99% 2051 yield decreased by 15 bps to 7.57%.
The spread of 10-year bond over 5-year bond declined to 17 bps from 18 bps in the previous week. The 15-year benchmark over 10-year benchmark spread remained came down to 15 bps from 19 bps while the 30-year benchmark over 10-year benchmark spread decreased to 25 bps from 26 bps on a weekly basis.
10-year SDL auction cut-off stood at 7.76% with a spread of 46 bps.
On a weekly basis, 1-year OIS yield declined by 3 bps to 6.2% while the 5-year OIS yield decreased by 14 bps to 7.02%.
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