During March, consumer inflation level in both India and US has softened significantly from previous level as evident from published data. It will prompt respective central banks to slow down the pace of rate hike. RBI has already paused the rate hike in the last MPC meeting which is likely to continue in the next policy meeting as inflation fell below the upper limit of inflation as pegged by RBI. Consequently, government bond yield will move in a subdued manner as already it has been seen.
System liquidity has entered the surplus zone again. As of 12th April, it stood at a surplus amount at Rs 1990 billion. Considering fall in inflation, pause in rate hike and surplus system liquidity, the gilt yield curve is likely to steepen from current level.
In the current scenario, the market awaits the outcomes of forthcoming US Fed meeting and guidance about further rate hikes.
Consumer inflation-Domestic consumer inflation mitigated to 5.66% in March 23 from 6.44% in previous month. Core inflation stood at 5.8%.
Government bonds, SDL and OIS yield movements
On a weekly basis, the new 10-year benchmark 7.26% 2033 yield rose by 1 bp to 7.21% while 7.26% 2032 yield rose by 2 bps to 7.23%. 7.06% 2028 yield stood at 7.06%. 7.38% 2027 yield rose by 4 bps to 7.05%. 5.63% 2026 yield increased by 3 bps to 6.99%. Long-term paper, 7.40% 2062 yield rose by 6 bps to 7.37%.
The spread of 10-year bond over 5-year bond decreased to 17 bps from 19 bps as compared to the previous week. The 15-year benchmark over 10-year benchmark spread rose to 11 bps from 9 bps while the 30-year benchmark over 10-year benchmark spread remained flat at 14 bps on a weekly basis.
10-yr SDL auction cut-off yield declined to 7.59% from 7.71% in previous week while spread decreased to 37 bps from 44 bps as compared to previous week.
On a weekly basis, 1-year OIS yield declined by 3 bps to 6.60% while the 5-year OIS yield stood flat at 6.12%.
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