Indian government bond yields remained steady after the Reserve Bank of India (RBI) decided to keep the repo rate unchanged at its recent monetary policy committee (MPC) meeting on December 8, 2023. The 10-year benchmark bond yield ended steady at 7.26 per cent on December 8, 2023, but dipped from 7.29 per cent of last week.
RBI Governor Shaktikanta Das further said in the MPC meeting that liquidity situations in the last two months didn’t necessitate open market sale of bonds.
In the week ahead, the market expects the bond spread between the 10-year government bond and state development loans (SDL) to increase. Besides, banks are also preparing for the AT1 bond issue.
Citing robust economy, RBI raised its fiscal-year growth forecast from 6.5 per cent to 7 per cent. The central bank indicated continuing tight monetary policy while it keeps a watch over inflation risks.
The government will issue a tranche of sovereign gold bonds (SGBs) this month, and one more in February 2024.
The date for subscription for 2023-24 Series III SGBs is December 18-22, 2023, while Series IV is scheduled for February 12-16, 2024, the Ministry of Finance said in a statement on December 8, 2023.
Further, the Centre plans to raise Rs 39,000 crore through sale of bonds, which include Rs 5,000 crore from new 10-year sovereign green bond.
Meanwhile, eight state governments have offered to sell securities by way of auction, for an aggregate amount of Rs 12,100 crore. The auction will be conducted on the RBI's Core Banking Solution (E-Kuber) system on December 12, 2023.
Treasury Bond Yields
The indicative yield for T-bills stands at 6.95 per cent, 7.16 per cent, and 7.15 per cent for three-month, six-month, and 364-day durations, respectively. In the 1-2-year tenure, the 7.72% GS 2025 shows a yield of 7.17 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) show a 7.21 and 7.24 per cent yield, respectively. Except for T-bills, indicative yields for all the above-mentioned instruments showed a dip compared to the previous week.
Bond Market Outlook
Venkata Krishnan Srinivasan, founder of Rockfort Fincap LLP, a financial advisory firm, says that the monetary policy committee has unanimously decided to keep the policy repo rate unchanged at 6.50 per cent. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
“The 10-year government bond finally ended the week at 7.27 per cent and it is expected to trade within a narrow range in the coming week. Meanwhile, the government has auctioned a new 10-year sovereign green bond today for Rs. 5,000 crore. The cut-off yield came at 7.24 per cent with a slight premium of around 3 bps. The spread between the 10-year government bond and SDL is expected to widen when SDL supply increases,” he says.
He adds: “Post RBI circular on risk weightage, many banks have lined up to issue AT1 bonds, Tier 2 bonds and Infra bonds in the coming weeks. Bank of India is doing a QIP issue to shore up their capital. Large issuers like REC, Canara, Tata Capital Financial Services, IIFCL, etc have tapped the market this week. Bank of Maharashtra has scheduled to launch their Tier 2 issue on Monday. Besides these banks, the bond market is expecting large state-owned entities like Nabard, Nabfid and IIFCL to tap the bond market again for large amounts.”
“Among non-banking financial companies (NBFCs) and large private corporate houses, many are exploring options and taking necessary board approvals to garner large quantum through the bond market. Some of the NBFCs are launching their bond issues through public issue mode,” Srinivasan further says
