Feb 20, 2013, 02.59 PM | Source: CNBC-TV18
Absence of open market operations (OMOs) will hurt the bond market opines Ashish Parthasarthy, treasurer, HDFC Bank.
The government will decide on the limit for bonds auction today. However, Parthasarthy says foreign institutional investors (FIIs) will buy bonds from anywhere they get the supply from. "At the point in time, when the secondary market is not conducive to provide enough supply, I think they will buy from the options. Otherwise they will buy from wherever they get supply," he adds.
Below is the edited transcript of Parthasarthy’s interview to CNBC-TV18.
Q: What is the sense you are getting on 10-year bond performance hereon? There is also the foreign institutional investors (FII) auctioning of limits today. Do you think that will bring further pressure for bond prices to rise?
A: Since the last auction has got cancelled, there is no more supply now. Generally, the bond market has been good. The expectations of rate cut, the government's fiscal consolidation process put together have created a favourable environment for bonds. It looks like it will continue. FIIs have raised a reasonably well big auction and reasonably aggressive pricing that could give further spur to the bond market.
Q: Do FIIs who buy these limits normally buy in the secondary market? Some people were saying that they normally prefer to buy in auctions but now the next auction is only going to go in April. Typically is it their behaviour not to buy in the secondary market?
A: No, I do not think I will call it a typical behaviour. I think wherever they can get supply from, they will buy in from there. So, at the point in time, when the secondary market is not conducive to provide enough supply, I think they will buy from the options. Otherwise they will buy from wherever they get supply.
Q: Do you expect the 10-year bond yields to fall further from 7.79 percent?
A: I think over a period of time, yes. There is some more room for the 10-year bond to fall maybe up to 7.70 or slightly lower than that. After that one has to wait and watch.
Q: What is the sense you are getting in terms of the next month? Do you think we are going to see bonds beginning to climb up again by March advance taxes? Give us an idea for the quarter itself, what kind of a range or do you think you will desist until you see the Budget?
A: I think whatever is expected from the Budget is reasonably clear. Unless there is a significant surprise to the GDP that is 4.8, I do not think that should make too much of a difference.
Yes, the advance tax payments and what is accompanied with advance tax payments should make a difference. I guess there are OMOs, which market anticipates around the advance tax payments. If that is true then it will keep the bond market where it is but if OMOs are absent that will be slightly negative for the bond market.
Q: At the moment, at 7.78 thereabouts the market is not pricing in a rate cut in March, is it or is it something that you will discount only much later?
A: I think to some amount pricing of rate cut is there in this price. It could be a possibility.