Update on the RBI Treasury Bill and Bond Auction: 1-year T-bill yield is 7.03%, highest indicative bond yield is 7.53%
The Indian bond market ended another dramatic week with rates spiking to 7.25 percent before easing off a touch as fresh government data revealed inflation rose to 7.44 percent in July as a result of increasing food costs as El Nino’s monsoon downpour caused havoc across the nation.
Retail inflation in India is now over the 2–6% tolerance level set by the Reserve Bank of India (RBI). This occurs at a time when food costs have increased because to the unpredictable El Nino monsoon.
According to Venkatakrishnan Srinivasan, the founder of financial advice company Rockfort Fincap LLP, rising inflation data caused the yield on the 10-year government bond to spike to 7.25 percent throughout the week before falling to 7.21 percent on Friday. The closing rate for the new 10-year G-Sec was around 7.20 percent.
He claims that the incremental cash reserve ratio (I-CRR) and inflationary pressure have lowered system liquidity, which has caused the money market rates to increase as well.
“We anticipate that issuers of commercial paper and certificates of deposit may increase their borrowing in the days ahead. Without a favorable catalyst, Srinivasan continues, “the bond market is anticipated to move in a range next week.
Meanwhile, on Friday, the RBI launched a new weekly auction of state development loans (SDLs) and Treasury bills (T-bills). Three-month, six-month, and 354-day indicative T-bill rates are 6.83 percent, 7.01 percent, and 7.03 percent, respectively.
Seven states, including Goa, Assam, Andhra Pradesh, Kerala, Bihar, Mizoram, and Uttar Pradesh (UP), have declared their participation in the SDL sale. The highest interest rates, 7.53 percent, are being offered by Uttar Pradesh and Kerala for SDLs that mature in 2034 and 2037, respectively.
The state governments anticipate selling SDLs of Rs 8,430 crore on August 22 as opposed to the planned market borrowing of Rs 17,350 crore, according to Rockfort statistics.
Updates on the corporate bond market:
Several issuers, including REC for Rs 2,210 crore and India Grid Trust for Rs 1,650 crore, have accessed the market this week. According to Rockfort, Delhi International Airport also intends to access the bond/NCD market the following week.
Banks and PSU organizations are anticipated to keep borrowing from the bond market in the meantime. Last week, the highly publicized AP State Beverages Corporation postponed its intended borrowing.
The Securities and Exchange Board of India (Sebi) is seeking feedback on a consultation paper by August 31, 2023 as it seeks to examine the current framework for major corporates to be required to borrow in order to expand the bond market.
