Any element of negative newsflow is only going to drive the yields higher, said Amandeep Chopra, Group President & Head of Fixed Income, UTI MF.
The big story this morning the Reserve Bank of India’s note of caution to banks sent the bond markets into a tizzy yesterday. Will today fare better? '
Banks must not be surprised, but understand the risks in the bond markets well, said Reserve Bank of India (RBI) Deputy Governor Viral Acharya, even as he noted the central bank will not intervene to bail out banks from adverse interest rate movements.
Banks are set to witness heavy treasury losses amounting to anywhere between Rs 15,000 - 25,000 crore in the third quarter results after the bond yields collapsed about 67 basis points in the December quarter.
To answer the question, CNBC-TV18 spoke to Vivek Rajpal, Rates Strategist, Nomura India and Amandeep Chopra, Group President & Head of Fixed Income, UTI MF.
According to Chopra, any element of negative newsflow is only going to drive the yields higher and there is absolute lack of buying. Now, with the RBI Deputy Governor's statement there will be even less enthusiasm from banks to purchase, so demand will continue to remain week.
The supply which is expected day after will test the market appetite, said Chopra.
However, after yesterday's correction, one might see some buying today, said Chopra, adding that there are other supporting factors like lower crude oil prices etc.
At current level of spreads, and with a small probability of rate hike from RBI, there could be some buying, so one could see levels of 7.50 percent for the benchmark 10-year bond yield.
According to Rajpal, the levels are becoming less relevant and the reaction to yesterday’s speech tells us that the market sentiment is very fragile.
Moreover, in the last few months continuous rise in oil pressure the market has seen immense supply pressure, which is denting the bond story further.
Therefore, sentiment will remain fragile and realised volatility will remain high.Both believe further hardening of bond yields from here on.