New Delhi [India], November 10 (ANI): Domestic government bond yields are expected to remain softer in the near term, with the 10-year benchmark yield likely to trade between 7.10 per cent and 7.25 per cent, as lower crude oil prices, improved global sentiment and renewed foreign investment inflows support the debt market, according to a report by ICICI Bank.
The report said domestic bond yields declined across maturities during the week ended November 6, with longer-tenor bonds witnessing a sharper fall than shorter-term securities. The easing followed a decline in global oil prices and improved risk sentiment after Democrats secured majorities in both chambers of the US Congress.
Foreign portfolio investment inflows of around USD 2.5 billion during the week also supported domestic bonds and the rupee, the report said.
"Demand for long-end bonds was more than short-end which resulted in a flattening bias in domestic yield curve," the report noted.
However, demand at the government's latest government securities auction remained mixed. The Centre raised Rs 36,000 crore through 15-year and 50-year bonds, with stronger demand for the 15-year paper but subdued interest in the 50-year segment.
The report also flagged higher state government borrowing as a concern for bond market spreads. Twelve states borrowed Rs 27,800 crore in the latest State Development Loan auction, while their planned borrowing for the coming week stands at Rs 29,050 crore, above the scheduled amount of Rs 27,560 crore.
ICICI Bank expects the higher issuance to keep the spread between state bonds and government securities elevated.
Meanwhile, system liquidity surplus widened to Rs 2.3 lakh crore, or 0.8 per cent of net demand and time liabilities, as of November 6. The Reserve Bank of India also conducted a variable repo rate auction worth Rs 50,000 crore to meet additional liquidity requirements.
The rupee appreciated 1.09 per cent against the US dollar during the week, supported by lower oil prices and foreign inflows. The report expects the currency to retain an appreciation bias in the near term, although its movement will depend on crude prices and foreign investment flows.
The report further said markets would focus on the October inflation readings in India and the US. India's consumer inflation is expected to rise to 5.9 per cent year-on-year in October, led by higher food prices and an unfavourable base effect. (ANI)
Lower oil prices pull down bond yields; 10-year G-sec seen trading at 7.10-7.25%: Report
