Traders predicting India’s bond yield curve to steepen additional are in all probability studying it unsuitable.
That’s the view of Jayesh Mehta, a veteran dealer at Bank of America. He thinks the report $75 billion of bond purchases by the central bank this fiscal yr and an extra minimize in rates of interest will tamp down the curve’s steepness from close to a decade excessive, pushing down yields on the most-traded 2029 notes to five.50%, the bottom since 2009.
“We’re of the view that there shall be softening of yields,” Mehta, India Treasurer on the bank, mentioned in an interview. “Within the subsequent six months, we see the general yield curve being decrease.”
The hole between the 2029 notes and two-year debt was at 132 foundation factors on Friday after widening by probably the most since 2010 in May. IDFC Asset and FirstRand Bank are amongst buyers who count on the curve to steepen additional amid a report 12 trillion rupees ($159 billion) of debt gross sales by the federal government this yr.
“Yields may be a lot decrease than what we have now proper now,” Mehta mentioned, including that he’s bullish on the 12-15 yr section of the curve “as a result of we see rates of interest happening additional by 25 to 50 foundation factors.”
For Mehta, the 30-year bond veteran, going towards the gang and profitable isn’t new. In October, he appropriately predicted 10-year yields will fall under 6%, in contrast with a consensus forecast of 6.45%, by the tip of the fiscal yr this March. In early 2019, he forecasted the RBI would ease earlier than the central bank slashed charges by 135 foundation factors; he bought the decision proper in 2017, too.
Bank of America Securities expects the RBI to buy about 5.6 trillion rupees ($75 billion) of bonds within the fiscal yr that started April 1. It has thus far purchased 1.2 trillion rupees of debt and repeated assurances of assist. That’s helped the yield on the 2029 notes decline greater than 50 foundation factors since end-January regardless of the federal government’s report borrowing program.
“Over the previous few months, the central bank’s actions and the Governor’s ‘whatever it takes’ assurance is giving confidence to the market,” Mehta mentioned. The market believes that “if some stress builds up, the RBI will come and assist it,” he mentioned.
This story has been printed from a wire company feed with out modifications to the textual content.
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