See 10-year bond yields at 7.80% in Q4: Nomura India

In an interview to CNBC-TV18, Vivek Rajpal of Nomura India says he has a 7.80 percent target, for 10-year yield, for the Q4 of the financial year.

Also read: High inflation may moderate in 2013; to prompt RBI rate cut Below is the edited transcript of his interview on CNBC-TV18. Q: What is happening? A: There are two-three factors. First of all, there is limited supply in the bond markets. There is a monetary easing expectation. We have been stating that the bond prices are really not pricing in much of a monetary easing expectations versus the other rates such as overnight indexed swap (OIS). So, it is on the expected lines. Q: What has changed now? The rate cut expectation is perhaps as old as the inflation number. So, atleast from December 14, we have been expecting it. Some people even expected it in the policy. That was reasonably a dovish statement. It reassured the cut in January. That is 14 days away, atleast 10 trading sessions away, what is new? Is it that the market is coming to terms with perhaps no extra market borrowing? Is there anything extra? Did you pick up anything from the financial stability report? Couple of analysts did send note about excerpts from the financial stability report. Was there any explicit indication about easing in January? A: The explicit indication about easing in quarter four was already there. Then the two downward surprises in inflation came. So, the market is coming to terms on rate cut on January 29. As we are getting closer to the January 29, the market has to keep on pricing in rate cut more and more. Also, in the new quarter, there is a renewed interest. The biggest fear in the minds of the market was about the extra supply. But after the Ministry of Finance clarification, it is getting clearer that they won’t borrow too much, maybe just two or three auctions. That can easily absorbed as there is very limited supply in quarter four. Q: How much of do you think is year-end management? Could we see something of a reversal tomorrow itself? At what point will you think that this has gone too far and start selling? A: Yes, last day effect is always there. But it is in the right direction. We have a 7.80 percent target for quarter four of the financial year.