The Indian bond market saw some traction this week as yields went up marginally after the rating agency, Fitch, downgraded the US debt rating from AAA to AA+. The 10-year Indian government bond yield closed at 7.19 per cent on Friday, up from last week’s closing at 7.16 per cent.
Fitch on Tuesday downgraded the US debt rating, citing a fiscal deterioration in the next three years. The action caused some temporary upside in the US treasury yields. Fitch is not the only one to downgrade the US debt rating. In 2011, Standard & Poor also downgraded it to AA+.
“We expect our government bond yields to drift lower on Monday, subject to tracking Friday’s US treasury closing levels. However, the yields may swing on either side post the RBI MPC (Reserve Bank of India's Monetary Policy Committee) policy scheduled next week,” says Venkatakrishnan Srinivasan, founder of Rockfort Fincap LLP, a financial advisory firm.
The US treasury yields fell in Friday’s opening trading session after a new government job report showed more than an anticipated slowdown by economists. It caused volatility in bond trade.
“The (Indian) market expects the MPC to continue its hawkish tone while maintaining its stance of withdrawal of accommodation,” Srinivasan further adds.
T-Bill & Bond Auction
Meanwhile, RBI on Friday announced its weekly auction of treasury bills and state development loans (SDLs). The indicative yield of T-bills for the three-month, six-month, and 364-day tenures are 6.76 per cent, 6.86 per cent, and 6.94 per cent, respectively.
Jammu & Kashmir (J&K), Andhra Pradesh, Telangana, Tamil Nadu, and Punjab have announced participation in the SDL auction. Of the five states, J&K, Telangana, and Punjab are offering the highest interest rates at 7.49 per cent for SDLs maturing in 2053, 2041, and 2048.
The total SDLs for next week’s auction are worth Rs 5,250 crore, much lower than the scheduled indicative market borrowing of Rs 11,000 crore, Rockfort data shows.
Corporate Bond Market
Its research shows that the issuance of listed primary bond/Non-Convertible Debentures (NCD) through the Electronic Book Provider (EBP) was much lower in July than the prior month. Srinivasan states, “The corporate bond market continues to be dominated by AAA, AA+ and AA credit-rated papers. Tata Capital issued NCDs worth Rs 6,000 crore this week.”
On August 4, 2023, the Insurance Regulatory and Development Authority of India (IRDAI) “gave relaxation” to insurers’ investments in HDFC Ltd post-merger with HDFC Bank Ltd, clarifying that bonds/debentures held by insurers in HDFC Ltd on the date of the merger announcement under the “housing and infrastructure” category should be treated as investments in that category till the maturity of the HDFC Ltd bonds, adds Srinivasan.
