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Bond Markets The week that was …status quo policy on Benchmark rates?

, December 4, 2017, 0 Comments

bonds-market-monetary-policy-marketexpress-inDuring the week, Yield on Government Bond remained under pressure and moved higher as host of data and events impacted the sentiments of the traders. Fresh from the rating upgrade by Moody’s, which infused bullish sentiments, remained short-lived as another rating agency S&P disappointed the markets by maintaining the status quo in its rating review.

Global crude prices remained stubborn ahead of OPEC meeting, which quelled any attempt at any sharp recovery in Bond markets. The most important among these were the release of Q2 FY18 GDP data and Fiscal Deficit numbers. GDP numbers arrested the falling trend and clocked 6.3% against previous quarter growth of 5.7% with significant expansion in manufacturing, electricity production. But Fiscal deficit numbers spooked the sentiments in the markets as it reached 96% of the Budgeted target for the FY ending March 2018.

As the probability of increased borrowing by the Government during the fiscal increased, yields came under pressure and impacted the cut off yields in the auction of Government Bonds. Benchmark 10yr Bond (6.97%GOI 2027) cut off came at 7.065% against previous week close of 7.00%, while longer-dated Bond (7.73% GOI 2034) was at 7.49%.

The market is awaiting new cues and is cautious ahead of the Monetary Policy Committee meeting scheduled for December 5-6th 2017. The market is anticipating a status quo policy on Benchmark rates. But it will also be watching RBI’s stance on inflation trajectory and rising fiscal deficit very closely.