INDIAN BOND YIELDS MAY FALL MORE, BOTTOM OUT BY FEB 2017, HERE'S WHY

INDIAN BOND YIELDS MAY FALL MORE, BOTTOM OUT BY FEB 2017, HERE'S WHY

NEW DELHI: Yield on India’s benchmark 10-year bond may bottom out between December 2016 and February 2017. Data from the calendar 1999 shows bond yields in the US and India move in the same direction, though the US rate leads Indian rates by five to eight months.

Of late, Indian bond yield has eased to its lowest level since May 2009 on rising hopes that the Reserve Bank of India (RBI) may cut interest rates after softening of retail inflation. On November 18, the yield of the 10-year government bond stood at 6.43 per cent.

According to HDFC Securities, the US rates bottomed out in early July 2016. Going by that data, Indian yields could bottom out over the next three months.

Recently, the 10-year US bond yield moved from 1.45 per cent in July 2016 to 2.29 at last reading. The US dollar scaled to its highest level in almost 14 years against a basket of currencies on November 18, while US bond yields advanced on bets that US inflation and interest rates are headed higher.

Economic data for the US seems to justify a rate hike ‘relatively soon’, Fed Chair Janet Yellen said earlier this week

Going by the correlation between US and India bond yields, chances are that we would see some uptick in yields in the coming year.

Lakshmi Iyer, Head of Fixed Income at Kotak Mutual Fund, said, “We have not bottomed out yet, and there is still some scope for yields to ease further. We are expecting a 50 basis points cut in repo rate by March 2017 and a 25 basis points cut subsequently as inflation is under control right now.”

“Fundamentally after the demonetisation move, we have seen an improvement in the liquidity condition in banks. At present, we are seeing a surplus of around Rs 2 lakh crore and this will bring down bank interest rates, which are going to put pressure on G-Sec yields because liquidity is higher. We may see a 25 basis points rate cut by RBI,” Bhaskar Panda of HDFC BankBSE -1.47 % said in an interview to ETNow.
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