The Indian bond market saw mixed sentiments this week in the backdrop of soaring food prices and the US Federal Reserve’s loosening stance on inflation amid slowing job growth.
For next week’s treasury bill auction, the Reserve Bank of India (RBI) has set the indicative yield for three-month, six-month, and 364-day tenors at 6.73 per cent, 6.77 per cent, and 6.85 per cent, respectively. For state development loan (SDL) auctions, seven states will participate.
This time, Tamil Nadu, Andhra Pradesh, Telangana, Kerala, Haryana, Jammu & Kashmir, and Punjab will participate in the SDL auctions.
Punjab and Andhra Pradesh are offering the highest interest rates at 7.54 per cent and 7.52 per cent for SDLs maturing on July 5, 2048, and July 12, 2042, respectively. The interest rates for all other participating states auctioning long-duration bonds are above 7.4 per cent.
Commenting on bond yields, Venkatakrishnan Srinivasan, the founder of Rockfort Fincap LLP and former Senior Vice President of Debt Capital Market at ICICI Securities, says: “The spike in US treasury yields last week led to further increase in Indian government bond yields. The 10-year government bond ended at 7.16 per cent on Friday, 4 bps higher than the previous Friday.
This week, the scheduled auction amount of SDLs was Rs 10,400 crore against the indicative borrowing calendar amount of Rs 11,500 crore. Srinivasan said the 10-year bond is expected to trade within a narrow range next week with an eye on the US treasury yield movements.
On Friday, two-year US treasury notes closed below 5 per cent, while the US 10 year notes closed higher at 4.07 per cent. These changes also impact the Indian market.
Also, the skyrocketing prices of vegetables in India have raised significant concerns.
Bond Market Trends
In June, fresh issuance of bonds crossed over Rs 1 lakh crore under private placement route. Due to the increase in term loan rates, most entities could be tapping the bond market.
Going forward, Srinivasan says, “The Indian bond market will look for positive triggers”.
“The large issuance from HDFC just before the merger, many corporates, banks, public sector undertakings, InvITs, ReITs, real estates, and lower credit issuers have tapped the bond market.”
As bond supply exceeds demand, the corporate bond yields too have inched up.
However, investors may prefer higher coupon rates for any fresh investments with continued uncertainty in the bond market. Hence, the yield spread could widen for lower credits. Srinivasan expects the primary bond issuance supplies to reduce drastically in July due to higher rates and other issues. Large issuers like PFC and SBI (AT1) are also expected to tap the bond market.
