Pal said the next trigger for the bond markets will be the US Fed meeting on 3rd May. RBI response to tightness in the interbank liquidity will be keenly watched though we expect liquidity to remain tight, he said. “Given the strong auction cut-offs especially in the benchmark 10-year bond, we expect the 10-year bond yield to trade in a range of 6.90% to 7.25% over the next one month.”
‘Despite the assertion by RBI that this month’s pause was not a Pivot, we believe that we are at the end of the rate hiking cycle in India and it’s a very good time to invest into Fixed Income with real yields positive across the curve. We think it is the right time for investors to increase allocation to Fixed Income as monetary tightening enters its last phase both globally too,” said Pal.
Bond yields came down across the curve with a flattening bias as supply concerns abated after better than expected auction cut-offs and lower supply of state government securities. The benchmark 10-year Bond yield touched a low of 7.09%. The curve, which had bull steepened after the pause by RBI, has flattened subsequently as the demand for longer tenure bonds has been robust with the short end of the curve getting inverted with respect to the money market yields, said Pal.
The 1 year Treasury bill yield is at 7% whereas the 3-5 year Gsec yields range between 6.90% to 7%. AAA Bond curve also flattened with 3yr and 5yr yields at 7.40% to 7.50% and 1yr CD’s trading between 7.45% to 7.50%. Liquidity in the banking system is getting tighter with the maturity of TLTRO’s. Incrementally also liquidity is expected to remain tight, and the flatness can persist in the corporate curve.
