The bond markets are expected to see a sharp upmove after the government reduced its FY13 borrowing programme by Rs 12,000 crore. Volumes however could be thin due to the 2-day strike beginning today, reports CNBC-TV18’s Latha Venkatesh.
Today is the first day that the bond markets are going to react to the Rs 12,000 crore bond auction cancellation. Effectively, it means that the Reserve Bank of India (RBI) will not hold any more auctions. The government will not borrow any more money in the current fiscal up to March 31 from the banks. So that should be a positive uptick for bond prices.
Bond yields, which move in the opposite direction, therefore, will fall. The 10-year yield is closed at 7.83% on Monday. It is likely to open at about 7.80%. You can see it perhaps falling to even lower levels and maybe stop at 7.75% in a week or so because there is another positive development.
Today the foreign institutional investors (FIIs) will be allotted the extra limits of government bonds and corporate bonds that they can buy. These limits will be auctioned by Securities and Exchange Board of India (SEBI).
So basically the FIIs have the option to buy more bonds, there will be no auctions so chances are they will come to the secondary market. That will push up bond prices further and bond yields further lower.
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