Indian federal bond yields ended little changed on Tuesday
as dealers preferred to stay light ahead of a central bank rate meeting and the
fiscal second-half borrowing numbers later in September.
Dealers are also waiting to see whether the government will increase diesel prices, a contentious political issue, as any rise will push up freight and input costs.
The Economic Times reported on Tuesday that the government may raise diesel prices by 4-5 rupees a litre after the current session of parliament ends on Sept. 7.
While such a move will be inflationary in the near term, the central bank itself has been arguing that the government raise subsidised fuel prices to cut its bloated deficit bill.
"The key trigger will be the second-half borrowing. Overshooting is a done deal with the market expecting 500-600 billion rupees of extra borrowing," said Mahendra Jajoo, head of fixed income at Pramerica Mutual Fund.
India is scheduled to borrow 5.7 trillion rupees in the current fiscal year that ends in March, 65 per cent of which will be completed during April-September.
But the government is unlikely to stick to its 5.1 per cent fiscal deficit target, and will have to borrow more to fund any further gap.
The central bank is unlikely to provide any relief by lowering rates as it views the current inflation levels as too high.
RBI is expected to keep its key interest rate steady this month, a Reuters poll showed.
Jajoo said the bond market will also await signals on liquidity from the RBI, specifically as to when it resumes its open-market bond purchase, which it stopped in end-June.
Dealers are also waiting to see whether the government will increase diesel prices, a contentious political issue, as any rise will push up freight and input costs.
The Economic Times reported on Tuesday that the government may raise diesel prices by 4-5 rupees a litre after the current session of parliament ends on Sept. 7.
While such a move will be inflationary in the near term, the central bank itself has been arguing that the government raise subsidised fuel prices to cut its bloated deficit bill.
"The key trigger will be the second-half borrowing. Overshooting is a done deal with the market expecting 500-600 billion rupees of extra borrowing," said Mahendra Jajoo, head of fixed income at Pramerica Mutual Fund.
India is scheduled to borrow 5.7 trillion rupees in the current fiscal year that ends in March, 65 per cent of which will be completed during April-September.
But the government is unlikely to stick to its 5.1 per cent fiscal deficit target, and will have to borrow more to fund any further gap.
The central bank is unlikely to provide any relief by lowering rates as it views the current inflation levels as too high.
RBI is expected to keep its key interest rate steady this month, a Reuters poll showed.
Jajoo said the bond market will also await signals on liquidity from the RBI, specifically as to when it resumes its open-market bond purchase, which it stopped in end-June.
Liquidity remains comfortable with the overnight benchmark
rate or Mumbai Interbank Offer Rate slipping below 8 per cent for the first
time in 11 months.
However, the cash shortage is expected to accentuate in mid-September when corporates pay advance tax, which will result in outflows to the tune of 500-600 billion rupees from the banking system.
The benchmark 10-year bond yield ended 1 b asis point lower at 8.21 per cent.
Total volume on the central bank's electronic trading platform was less than usual at 160.25 billion rupees.
The benchmark five-year swap rate was unchanged at 7.16 per cent, while the one-year rate was down 1 bp to 7.79 per cent.
However, the cash shortage is expected to accentuate in mid-September when corporates pay advance tax, which will result in outflows to the tune of 500-600 billion rupees from the banking system.
The benchmark 10-year bond yield ended 1 b asis point lower at 8.21 per cent.
Total volume on the central bank's electronic trading platform was less than usual at 160.25 billion rupees.
The benchmark five-year swap rate was unchanged at 7.16 per cent, while the one-year rate was down 1 bp to 7.79 per cent.
Source: http://economictimes.indiatimes.com/markets/bonds/indian-bonds-yields-little-changed/articleshow/16252338.cms?curpg=2
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