Bond Market Remains Volatile After August CPI Data; Tentative 1 Yr T-Bill Yield At 7.0%

The tentative yield for three-month, six-month, and 364-day T-bills are 6.82 per cent, 7.02 per cent, and 7.0 per cent, respectively.
India Bond Market
India Bond Market

The Indian bond market remained volatile this week amid tight system liquidity and CPI retail inflation easing to 6.83 per cent in August from the expected 7 per cent, bringing relief to bond investors. After a volatile session this week, the 10-year bond closed at 7.20 per cent on Friday.

Bond traded between 7.12 per cent and 7.25 per cent this week, tracking the US treasury movements, CPI inflation, and tight liquidity. The Consumer Price Index (CPI) fell to 6.83 per cent from a 15-month high of 7.44 per cent in July, supported by falling vegetable prices.

“Inflation, the US treasury yields, rupee volatility, and Brent crude prices will continue to affect our bond yields. The market will continue to look for positive cues next week,” says Venkatakrishnan Srinivasan, founder of Rockfort Fincap LLP, a financial advisory firm.

Its US counterpart, on the other hand, continues to see Treasury yields edging higher. On Friday, the two-year US Treasury bills stayed above the 5 per cent threshold, Reuters reported.

Economists estimate that US inflation has eased further in the 12 months through August to 3.8 per cent, although higher than the Fed’s 2 per cent target.

Nonetheless, the Indian bond market closed the week with a positive outlook.

According to Rockfort data, the net system liquidity, as of September 14, 2023, stayed positive with Rs 2,696 crore, mainly due to advance tax payments.

Meanwhile, the Reserve Bank of India (RBI) announced the weekly auction of Treasury bills (T-Bills) on Friday. However, the auction circular on State Development Loans (SDLs) is yet to be updated. The yield for three-month, six-month, and 364-day T-bills are 6.82 per cent, 7.02 per cent, and 7.0 per cent, respectively.

Corporate Bond Market

The week also saw the issuances of many primary bonds and non-convertible debentures (NCDs), including IIFCL, THDC India, L&T Finance, LIC HF, PNB HF, Axis Finance, Kotak Mahindra Prime, Bank of India, Bank of Maharashtra, Motilal Oswal Finvest, etc.

Srinivasan says that many other prominent bond issuers, such as Bajaj Finance, DLF Cyber City, Godrej Properties, Hinduja Leyland Finance, Shree Cement, Sundaram Finance, etc., are possibly planning to tap the market next week.

“Many bond/NCD issuers are gearing up to launch their public bond/NCD issuances to target retail investors. These issuances are expected to offer attractive yields to investors besides offering different varieties, depending on the investors’ risk appetite. Investors will get a chance to choose the NCDs with a desired credit rating, coupon and tenor,” Srinivasan adds.

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