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MOSL: ECOSCOPE-Finally, some relief for the bond markets-Biggest fall in 10-year yield in more than four years

ECOSCOPE: Finally, some relief for the bond markets; Biggest fall in 10-year yield in more than four years

 

• The Indian government has planned to borrow only 47.6% of its full-year borrowing target in 1HFY19, much lower than the average 1H borrowing of 60-62% of the full-year borrowing target over the past many years. Furthermore, the borrowings composition, as desired, has tilted toward short-end securities, which is likely to flatten the yield curve.
• Furthermore, the government has revised up its borrowing from the National Small Savings Fund (NSSF) by INR250b to INR1,000b. Buyback was also reduced by INR250b. All this equates to a reduction in gross borrowings by INR500b. However, the government did not make any announcement of a reduction in the GMB target for FY19.
• Notwithstanding the unchanged fundamentals, these announcements have led to a fall of more than 30bp in the benchmark yield today – the maximum one-day fall since November 2013. Revision in the FPI limits may also provide further boost to bonds.
• As the focus shifts back to fundamentals, we would be keenly looking at the states’ borrowings calendar, monsoon forecasts and the MSP announcement from the center. These factors will determine the sustainability of the fall in yields.