Indian government bond yields dipped as Treasury yields and oil prices plunged on Friday, and investors turned their focus on the supply of fresh debt in the upcoming auction next week.
However, the overall market sentiments remain positive despite continued negative liquidity in the banking system, in the backdrop of the successful inaugural auction of the ultra-long 50-year government security in early November that saw heavy over-subscription.
On Friday, the 10-year bond yield fell sharply to 7.20 per cent before closing at 7.22 per cent. Also, the corporate bond spreads saw further compression, RBI said in its monthly bulletin.
Meanwhile, the central government raised Rs 30,000 crore from the auction of three dated securities (bond offering 7.37 per cent and maturing in 2028, bond offering 7.18 per cent and maturing in 2033, and bond maturing in 2053 at 7.30 per cent) on Friday, November 17, 2023.
The five state governments and a union territory continued higher-than-expected market borrowings for the fourth consecutive week. Together, they raised Rs 12,500 crore on November 13, 2023, through bonds of varying tenure, with cut-off yields ranging from 7.60-7.73 per cent.
Treasury & Bond Yields
The indicative yield for T-bills stands at 6.93 per cent, 7.09 per cent, and 7.12 per cent for three-month, six-month, and 364-day durations, respectively. For next week’s auction of state development loans (SDLs), 12 states have announced their participation. Punjab and Telangana are offering the highest interest rates for their SDLs maturing in November 2033 and 2037.
Bond Market Outlook
Says Venkatakrishnan Srinivasan, founder of Rockfort Fincap LLP, a financial advisory firm, “US Treasury yields sharply went down this week, following the inflation data and the US bond market too is expecting a possible change in interest-rate cycle. The Brent oil price too came down below $80 per barrel.”
The state governments have offered to sell SDLs worth Rs 11,620 crore, which is lower than the scheduled market borrowings of Rs 14,300 crore, he added.
Meanwhile, the Reserve Bank of India (RBI) increased the risk weightage for banks and non-banking financial companies (NBFCs) on November 16, 2023, on consumer credit exposure, credit card receivables, bank credit to NBFCs, with some exceptions.
Srinivasan believes the circular may impact some banks and NBFCs. “While banks are well capitalized, few banks may have to raise additional capital, and the NBFCs may have to look for alternate funding sources, including bond markets, as we expect the bank’s lending rate may go up,” he explained.
“If the additional bond supply exceeds investor demand, the overall corporate bond yields may inch up depending upon the respective credit rating of those issuers. Hence, we expect many issuers may hurry to tap the bond markets in the coming weeks,” he said.