Bond Yields Fall On Speculation Of Windfall Gain For The Government
Foreign investors turned buyers of Indian debt on Wednesday
Bond yields fell on Thursday as traders speculated about a possible windfall gain for the government following its decision to withdraw notes of Rs 500 and Rs 1000 from circulation on November 8.
On Wednesday, the government cleared an ordinance which, according to a PTI report, would lead to the old currency notes being extinguished. This, in turn, may allow for the Reserve Bank of India to transfer a special dividend to the government.
A softening in US treasury yields also impacted trade.
The 10-year benchmark yield closed at 6.52 percent on Thursday compared to 6.58 percent in the previous session of trade. It touched a high of 6.61 percent and a low of 6.52 percent.
Today’s fall in the yields towards the fag end of the day may be due to a combination of factors, with the first one being the softening of US treasury yields. Secondly, positive sentiment on account of promulgation of a government ordinance on holding of old notes beyond the threshold limit and empowering the RBI to reduce their liabilities. This, in turn, sparked hopes of a special dividend by the Reserve Bank of India to the government that could aid the fiscal situation.Dhawal Dalal, Chief Investment Officer - Fixed Income, Edelweiss Mutual Fund.
Foreign portfolio investors (FPIs) turned buyers of Indian debt in trading this week. FIIs bought in debt to the tune of Rs 1101.75 crore on Wednesday, according to data available on the website of National Securities Depository Ltd.
FPIs have been net sellers of Indian debt this year, pulling out as much as Rs. 44, 685 crore so far this calendar year. The selling is nearly on par with sales of Rs 50,849 crore seen in 2013.
Comments from RBI governor Urjit Patel as part of the central bank’s Financial Stability report (FSR) may offer some comfort to the bond markets on the last trading day of the year on Friday.
Though, an uptick in interest rates in the US and rise in some commodity prices increase the risk of spillover to emerging markets, domestic macroeconomic conditions remain stable with significant moderation in inflation, said Patel in the foreword to the FSR.