See 10-year yield stabilising at 8.15%: BofA

Jayesh Mehta, managing director and country treasurer, Bank of America doesn’t see bond yields crossing 8.20 percent. "We do not see bonds doing much in either side," he said in an interview to CNBC-TV18.

In the next few days, he expects 10-year bond yield to stabilise at 8.15 percent. "The yield is going to still stay range bound at 8.15 percent plus or minus 3 bps and that is where people will wait for November open market operation (OMO)," he added.

Below is an edited transcript of  his interview on CNBC-TV18 with Udayan Mukherjee

Q: Where do you see the yields moving after yesterday’s spike up post the policy?

A: Yes, yesterday was the sell off which people have built up in anticipation. We do not see bonds doing much on the either side. So even on the downside, there is yield going up. We do not see it crossing 8.20 percent, it is at 8.18 percent or something like that but we do not see it crossing 8.20 percent. Most probably it would stabilize at around 8.15-8.16 pecent in next four-five days or so.

I think nothing is going to happen to the bond; it is still going to stay range bound at 8.15 percent, plus or minus three bps. This is where people will still wait for November open market operation (OMO). So, we always live on hope and will start hoping for OMO in November end.

Q: Does it look like 8.10-8.20 percent might last for this entire calendar year because it is unlikely that we are going to get a rate cut, before January?

A: It looks like, but maybe mid-December or around December people start building on expectations for January. So it maybe a slightly 8.10 percent because we also have to see if the OMO comes in further. So, OMO coming and maybe going mid-December where the expectation for January rate cut will be built up. So that can bring it down but atleast yes, in normal terms you can say 8.10-8.20 percent is the range or even maybe 8.15 percent plus or minus 2-3 bps. So, I will kind of narrow it further, moving anywhere.

Q: What kind of range do you see for the rupee which is now flirting with 54?

A: I think we would have a rupee depreciating bias. The momentum has been broken and the only thing we will see is some appreciation in rupee coming in whenever we have good FII flows. Atleast, for the time being it does not look like unless things change and something happens dramatically, because this was a low hanging momentum, which would have continued.

Now we have to see other hard reforms which are for the hard economy, and that takes time. So yes, if we see large FII flows, otherwise bias remains little bit depreciating.

Q: Despite the CRR cut of 25 bps, do you think the market is still expecting a strong OMO in November?

A: Yes, because you still have Diwali going on. Though there is Rs 90,000 crore deficit of which maybe, Rs 50,000 crore is government owned which I do not know when they span so if they span plus, you will have a cash outflow for Diwali spending. So, there is a remote chance but also a probability of an OMO ending November.