9 Apr 2023

1st auction for FY24 is bullish for bonds

During the auction of government bonds on 6th April, auction cut-off yield came down as compared to that in auctions conducted during the end of FY23. This bullishness can be attributed due to RBI’s pause in rate hike recently conducted at the MPC meeting. On 6th April auction cut-off yield of New 5-year paper, 7.26% GS 2033 & 7.36% GS 2052 stood at 7.06%, 7.21% & 7.35% respectively as compared to cut-of yield of 7.40%, 7.45% & 7.38% of the papers 7.10% GS 2029, 7.10% GS 2029 & 7.40% GS 2062 respectively.

author dp
Team INRBonds
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RBI’s surprising status quo on policy rates has caused gilt yields to come down. In the view of some improvement in the global economy, the central bank has decided to prioritize economic growth with a strong vigilant look on domestic inflation. However, the RBI Governor has indicated that the central bank will not hesitate to take appropriate action in coming policy meetings if the economic scenario demands to do so. So, consumer inflation in the coming months and the global central bank’s rate action will be very crucial in future policy meetings.

In the current situation, the ongoing scanty liquidity position is likely to improve and enter a comfortable zone while the government bond yield curve is expected to exhibit steepening. 

India’s Current Account Deficit-Q3FY23

India’s current account deficit declined to USD 18.2 billion (2.2% of GDP) in Q3FY23 from USD 30.9 billion (3.7% of GDP) in Q2FY23 and US$ 22.2 billion (2.7% of GDP) during Q3FY22. Services exports reported a growth of 24.5% on a year-on-year (y-o-y) basis on the back of rising exports of software, business and travel services.

Government bonds, SDL and OIS yield movements

On a weekly basis, the new 10-year benchmark 7.26% 2033 yield came down by 11 bps to 7.20% while 7.26% 2032 yield declined by 11 bp to 7.21%. New 5-year bond auction cut-off yield stood at 7.06%. 7.38% 2027 yield declined by 17 bps to 7.01%. 3-year benchmark 5.63% 2026 yield decreased by 19 bps to 6.96%. Long-term paper, 7.40% 2062 yield lost by 10 bps to 7.31%.

The spread of 10-year bond over 5-year bond increased to 19 bps from 13 bps as compared to the previous week. The 15-year benchmark over 10-year benchmark spread rose to 9 bps from 5 bps while the 30-year benchmark over 10-year benchmark spread rose to 14 bps from 10 bps on a weekly basis.

10-yr SDL auction cut-off yield declined to 7.71% from 7.79% in previous week while spread decreased to 44 bps from 47 bps as compared to previous week.  

On a weekly basis, 1-year OIS yield declined by 18 bps to 6.63% while the 5-year OIS yield decreased by 18 bps to 6.12%.

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