Global concerns can spoil mood for bond mkts: DSP BlackRock

Despite a hint of change in the bond market sentiments, as the yields are touching almost 9%, the mood could be short lived if global volatility takes a toll, says Dhawal Dalal, senior vice president and head of fixed income at DSP BlackRock Investment Managers.

In an interview to CNBC-TV18, Dalal says, "Over the last few days, the bond market participants were expecting positive news, either in the form of an increase in the FII limit or any liquidity infusing measures by the RBI. Hence, the market may not see previous low prices, unless, the external environment deteriorates very soon unexpectedly." Further, on the increase in the FII limits, he says it should bring a significant rise in the inflows. Below is an edited transcript of Dhawal Dalal's interview to CNBC-TV18. Also watch the accompanying video. Q: Has the mood changed in the bond market, the yields were touching 9% almost but because of the OMO and the FII limit being expanded have things turned around? Do you think 9% is the cap now? A: Absolutely, over the last couple of days the bond market participants were expecting some sort of positive news, either in the form of an increase in the FII limit or any liquidity infusing measures by the RBI. And, that has resulted in a good rally around 15-20 basis points across the liquid counter, over the last couple of days. It resulted in a feel good fact that has improved many sentiments. Now going forward, since all the good news is out and market participants had bought into the rumours, now whether they consolidate at these levels or sell off, that is yet to be seen. However, that market may not see the previous low prices, unless the external environment deteriorates very soon unexpectedly. Q: On the FII limit being upped, do you expect it to make a significant impact in terms of involvement or contribution or do you think that interest is largely low right now even in the debt market and there might be a significant increase? A: I believe that some of the FIIs have keen interest to invest in the Indian fixed income products. At this point of time both from the interest rate perspective, as well as the currency perspective are a double advantage. So, I am very confident that given the increase in the limit, we should see significant inflow in coming days. Q: Would you expect this relief on yields to be short lived though? Over the next couple of months, what do you think will the yield probably see on the benchmark? A: I think at this point of time our thinking is that all good news is out. Now comes the harsh times, in terms of figuring out what kind of incremental borrowing the government is going to announce on the internal side. However, we are more concerned about the external environment and that you can see in form of rising LIBOR rates and depreciating currency and more worries in sovereign debt crisis in Europe. It could snowball into a sudden change in the sentiment and that could worsen the bond market perspective from the short term perspective. Q: Do you expect more onus announcements from the Reserve Bank in the next few weeks and months? A: Absolutely, I think market participants have figured out that the minimum requirement from the RBI