India’s bond market remained flat this week as the US long-term bonds climbed to 15-year highs, and inflation continued to moderate from a 7 per cent peak a year ago. The Fed’s current benchmark rates are between 5.25 and 5.5 per cent, the highest in over two decades, as the central bank moves to fend off the country’s record price rise post-Covid.
“Overall, a flat market this week combined with a tightened liquidity situation due to I-CRR. System liquidity continues to be positive, with Rs 80,233 crores as of August 31, 2023,” says Venkatakrishnan Srinivasan, founder of Rockfort Fincap LLP, a financial advisory firm.
The Reserve Bank of India (RBI) is expected to review the Incremental Cash Reserve Ratio (I-CRR) next week “with a view to returning the impounded funds to the banking system ahead of the festival season,” Srinivasan adds.
Meanwhile, RBI has announced another weekly auction of G-secs. The indicative yield for three-month, six-month, and 364-day Treasury bills is 6.77 per cent, 6.96 per cent, and 6.97 per cent, respectively. The bidding will close on Wednesday.
This time, Goa, Andhra Pradesh, Assam, Haryana, Rajasthan, Punjab, Himachal Pradesh, Tamil Nadu, Telangana, Manipur, Uttarakhand, and Maharashtra will participate in the State Development Loan (SDL) auction. Himachal Pradesh is offering the highest interest rate at 7.47 per cent with a 2038 maturity. Most states are offering above 7.4 per cent.
Banks continue to issue Certificate of Deposits (CDs) instead of FDs to meet the credit demand, as CDs are short-term. Srinivasan says that markets fear RBI may extend the ICRR to calm inflation. He adds the 10-year government bond yield remained largely flat to close at around 7.17 per cent on Friday evening compared to the previous week’s closing of 7.20 per cent.
The state governments have offered to sell SDLs worth Rs 15,700 crores on September 5, as against the scheduled borrowing calendar of Rs 22,300 crores. Once again, the state governments are borrowing much lower than the scheduled borrowing amount, says Srinivasan.
Rockfort data shows that Tata Communications, Central Bank of India, Sundaram Finance, Bajaj Housing, Embassy ReIT, Microtech Developers (Lodha) and many other issuers have tapped the bond market successfully.
