Supply crunch to take bond yields below 8.60%: HSBC India

Vineet Malik, Director and Head-Interest Rates at HSBC India said that the market is trading on a very short-term horizon now. According to him, there are too many factors hitting the market either way. He believes that due to the dearth of supply of bonds in the market, yields can go below 8.60% as well.

Excerpts from CNBC-TV18’s exclusive interview with Vineet Malik:

Q: Do you see the yields going even lower than 8.6%?

A: The market is trading on a very short-term horizon now. There are too many factors hitting the market either way. Given the fact that there is a dearth of supply of bonds in the market, one cannot rule out a move below 8.60% as well.

Q: What do you make of the couple of statements that have come from the Finance Minster (FM)? It has been attributed to the sources that were sitting with him in his meet with foreign institutional investors (FIIs) saying that monetary easing will begin and government will meet its Fiscal Responsibility and Budget Management (FRBM) target.  Given these types of noises from the FM, what would be the average rates that you will give the ten-year in the next quarter?

A: As the FM has said, it is too soon to read too much into one data point but it does provide the market with some sort of initial feeling that the worst is behind us. If the data continues to soften, then people will start talking about the Reserve Bank of India (RBI) starting to loosen on the liquidity front.

Q: FM also said that the FRBM targets will be met - does that lessen the worries on extra-bond issuances in the second half or do you think that FRBM target could mean three months of GDP?

A: For now, those worries still remain.