Indian bond yields went up by 2-4 basis points across the curve after RBI announced the withdrawal of I-CRR in a phased manner and indications that the US Federal Reserve may keep the benchmark rates steady at its next policy meeting from September 19-20.
Meanwhile, system liquidity continued to improve steadily post the I-CRR announcement, with Rs 76,047 crore as of September 7, 2023.
“RBI is cautious about the evolving liquidity scenarios. While withdrawing I-CRR in a phased manner, RBI has given a clear indication to the market by conducting VRRR yesterday that they will not hesitate to use other tools to manage liquidity,” says Venkatakrishnan Srinivasan, founder of Rockfort Fincap LLP, a financial advisory firm. On Friday, RBI conducted a 14-day VRRR auction amounting to Rs 50,000 crores but received only Rs 18,670 crores.
According to Rockfort, all money-market instruments, like Treasury bills (T-bills), Commercial Papers (CPs), Certificate of Deposit (CDs), etc., are trading in the range of 6.80-7.80 per cent depending on the tenor and nature of the instrument.
For example, T-bills for 3 months are trading at around 6.80 per cent and between 7.00 per cent and 7.05 per cent for six months to 12 months. The top-notch credit-rated bank CDs are trading in the range of 7.00-7.50 per cent for 2 months to one-year tenure.
Meanwhile, the Reserve Bank of India (RBI) on Friday announced the next weekly round of Treasury bill (T-bill) and state development loan (SDL) auctions.
The indicative T-bill yields for three-month, six-month, and 364-day are 6.85 per cent, 7.00 per cent, and 6.98 per cent, respectively.
Also, Maharashtra, Madhya Pradesh, Jammu & Kashmir, Haryana, Goa, Assam, Andhra Pradesh, Uttarakhand, Telangana, and Punjab have announced participation in SDL auctions.
Assam offers the highest interest rates at 7.47 per cent (maturing on September 11, 2033) among SDLs. Others, such as Goa, Andhra Pradesh, and Uttarakhand, are offering 7.45 per cent.
The state governments have offered to sell SDLs worth Rs 15,100 crore on September 12, as against the scheduled market borrowing of Rs 8,100 crore.
RBI also announced on Friday the issuance of Sovereign Gold Bonds (SGBs), which can be purchased through RBI’s retail direct account.
SGB issuance will run from September 11 to 15, 2023, with an issue price of Rs. 5,923 per gm., and maturity on September 20, 2031. For online purchases, there is a discount on the issue price, at Rs. 5,873 per gm. The allotment date for the SGBs is on September 20,
SGBs offer an assured 2.5 per cent interest rate yearly plus the gold market returns. These assets also have other benefits like no capital gains tax on redemption after eight years, GST or making charges as incurred in physical gold. SGBs are guaranteed by the Government of India. There is also an exit option every six months after completing five years from the date of issuance.
“We expect the money-market issuances to increase, considering the current market situation,” says Srinivasan, adding that the 10-year government bond closed at around 7.20 per cent on Friday compared to the previous week’s closing of 7.17 per cent.
“With a weakening rupee, the two-year US treasury bills surged back to around 5 per cent levels; we expect the bond market to weaken further.”
Reuters reported that the long-term US Treasury yields were on track for weekly gains despite a decline on Friday amid signals that Fed officials are not ready yet to declare war on inflation.
US investors will likely keep a close watch on the consumer price index (CPI) data due on Wednesday. The 10-year yield rose about 9 bps this week, the largest gain in about a month.
Bajaj Finance, Kotak Mahindra Prime, Mindspace Business Park REIT, Aditya Birla Fashion Retail, HDB Financial Services, Tata Capital Financial Services, LIC Housing Finance, PNB Housing, and many other issuers have successfully raised funds from the bond market last week.
“We expect some state-owned banks to issue tier-2 bonds in the coming week,” Srinivasan says.