Halister News

(Bloomberg) -- India’s 10-year bond yield may drop to 7%, lowest in seven years, amid rate-cut expectations while cash with banks rise on RBI’s liquidity steps, according to Barclays.

• “There is actual cash with banks, in some cases surplus and in some cases banks will need to borrow much less, which gives them confidence to buy bonds,” says Anindya Das Gupta, Mumbai-based managing director & head of local- markets trading at Barclays
• RBI’s bond purchases have pumped liquidity into the banking system and fixings are now “more in control,” Das Gupta says
• 10-yr bond yield currently trading at 7.18%
• India’s central bank in April pledged to move liquidity closer to neutral from negative
  • Data on Aug. 5 showed that core-banking liquidity rose to 562b rupees ($8.4b) surplus from a deficit of as much as 1.5t rupees earlier in 2016
• Demand for Indian sovereign bonds, which have rallied for six weeks, have also been bolstered by a good monsoon, lower commodity prices, and expectations for a new dovish central bank governor: Das Gupta
• “A rate cut is possible in the next three to six months and the demand-supply dynamics suggest that levels are justifiable and bonds don’t look overpriced,” says Das Gupta
  • 10- to 14-year bond segment looks attractive as it is where most of the market liquidity is, given benign rate view
  • 10-year yield may trade 7%-7.25% for next couple of months
• The GST tax reform bill, which was passed last week, is a sentiment booster though the impact on fiscal deficit and inflation may be less certain: Das Gupta
  • Investors will be looking for stable policies and currency
  • Balance sheets of public-sector banks are a cause of concern for foreign funds, and the govt may need to inject more capital