SENSEX NIFTY
Mar 26, 2013, 02.48 PM IST | Source: Reuters

RBI will cut rates by another 50 bps by mid-2013: BarCap

Barclays Capital says the March selloff in Indian government bonds is "overdone." BarCap says RBI will eventually cut interest rates by another 50 basis points by mid-2013, noting it interpreted RBI's policy statement on March 19 as being "balanced", and not the hawkish tone that markets have interpreted.

RBI will cut rates by another 50 bps by mid-2013: BarCap

Barclays Capital says the March selloff in Indian government bonds is "overdone." BarCap says RBI will eventually cut interest rates by another 50 basis points (bps) by mid-2013, noting it interpreted RBI's policy statement on March 19 as being "balanced", and not the hawkish tone that markets have interpreted.

* "We read the policy statement as balanced, and in an environment of weak growth and softer core inflation, we expect the RBI to eventually lower the repo rate by another 50 bps by mid-2013," BarCap says.

* The recent selloff offers a buying opportunity for 10-year bonds, targeting 7.40 percent in the first half of fiscal 2013/14, with a stop-loss at 8.15 percent, it says.

Also read: RBI wearing too many hats: Ex-Sebi chief Damodaran

* BarCap recommends investors switch from 30-year bonds to 10-year bonds, given expectations for a bull-steepening in the yield curve.

* Tips bonds to outperform swaps as although 10-year bonds have sold off by about 15 bps since the FY13-14 budget announcement, 5-year OIS is broadly unchanged and the OIS curve is still pricing in front-loaded rate cuts.

* Recommends buying 10-year bonds versus paying 5-year OIS to position for spread compression with a target at 50 bps and a stop-loss at 75 bps.

READ MORE ON  Barclays Capital, RBI , bonds

ADS BY GOOGLE

video of the day

Modi premium over, market focusing on quality: Ridham Desai

Explore Moneycontrol

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.