Long-Term Govt Bond Yields Inches Higher; Large Issuers Likely to Issue More Bonds Next Week

Indian government bond yields rose at the end of the week, tracking a rebound in US peers. The 10-year benchmark bond yield was at 7.26 per cent on November 24, 2023, after ending the previous session at 7.25 per cent.

The reversal in bond yields and the dollar's rates in the US is expected to be advantageous for emerging markets such as India. Meanwhile, another factor affecting the bond market, oil prices, continued to drop as there's an anticipation that OPEC+ may not increase production cuts for the upcoming year.

Meanwhile, 17 state Governments have offered to sell securities by way of auction, for an aggregate amount of Rs 35,300 crore. The auction will be conducted on the Reserve Bank of India Core Banking Solution (E-Kuber) system on November 28, 2023.  

The overall market sentiments in the Indian bond market remain positive despite continued negative liquidity in the banking system, in the backdrop of the successful inaugural auction of the ultra-long 50-year government security in early November that saw heavy over-subscription.

Earlier this week on November 21, 2023, 11 states raised Rs 11,620 crore from the auction of dated securities. The 10-year state bonds witnessed cut-offs ranging from 7.65 per cent to 7.68 per cent, almost 40 bps higher compared to the central government paper.

Treasury & Bond Yields

The indicative yield for T-bills stands at 6.94 per cent, 7.11 per cent, and 7.14 per cent for three-month, six-month, and 364-day durations, respectively. In the 1 to 2-year tenure, the 7.72% GS 2025 shows a yield of 7.25 per cent.

Moving to longer tenures, both the 7.37% GS 2028 (4 to 5-year tenure) and the 7.18% GS 2033 (9 to 10-year range) also show a 7.25 and 7.27 per cent yield respectively.

For next week’s auction of state development loans (SDLs), 17 states have announced their participation.

Bond Market Outlook

Says Venkata Krishnan Srinivasan, founder of Rockfort Fincap LLP, a financial advisory firm, “The 10-year government bond closed higher this week at 7.27 per cent. We expect the 10-year government bond to trade within a narrow range in the coming week. ”

The banking system liquidity continued to be negative and in fact, the deficit has widened this week due to large equity IPO funding, he added.

The State Governments have offered to sell SDL by way of auction, for an aggregate amount of Rs 35,300 Crore in the coming week compared to 29500 crores as scheduled in the Indicative Calendar of Market borrowings by State Governments for the Quarter, he further said.

"Post RBI Regulatory measures towards consumer credit and bank credit to NBFCs, many issuers have rushed to the bond market. During this week many public sector entities and banks have tapped the bond market which includes SIDBI, REC, IRFC, and Canara Bank. Shriram Finance, GMR Airports, Tata Capital Financial Services and many other entities have tapped the bond market too this week," Srinivasan said.

Last week the Reserve Bank of India (RBI) increased the risk weightage for banks and non-banking financial companies (NBFCs) on consumer credit exposure, credit card receivables, and bank credit to NBFCs, with some exceptions. This led to few banks having to raise additional capital, and the NBFCs tapping bond market for funding sources.

Srinivasan forecasted that next week, many large entities including Power Finance Corporation and a few other banks will tap the bond market. Issuers may explore Infra bonds, Tier 2 bonds and AT1 bonds in the coming weeks, he said.