10-yr bond yield may fall be­low 7.3% if Opec doesn’t cut out­put

Financial Chronicle - - MONEY GAME - PARNALI KSHIR­SAGAR

GILT prices may see an ex­tended rally in the com­ing days with the yield on the 10-year gov­ern­ment bond fall­ing be­low 7.30 per cent in the near-term, a first since April 9, if oil car­tel Opec de­fers from out­put cuts even as Re­serve Bank of In­dia pol­icy state­ment hints of change in pol­icy stance in Fe­bru­ary with a pos­si­ble rate cut in FY20, econ­o­mists said.

If Opec fails to come to an agree­ment to­wards pro­duc­tion cut or if the cut is be­low mar­ket ex­pec­ta­tion of 1.5 mil­lion bar­rel per day, Brent crude oil price will fall well be­low $60 a bar­rel help­ing In­dia to con­trol its im­ported in­fla­tion and sub­se­quently rate ac­tion by the cen­tral bank, econ­o­mists added.

“Bonds will closely read ru­pee and Brent cues, how­ever favourable bond de­mand sup­ply dy­nam­ics, sharp cor­rec­tion in global yields and sub 3 per cent Novem­ber in­fla­tion print could push the yields down fur­ther, with fis­cal slip­page risks cap­ping bond gains,” Mad­havi Arora, econ­o­mist, rorex & rates at Edel­weiss Se­cu­ri­ties.

Bond deal­ers ex­pect 10-year bond to trade in 7.3-7.5 per cent till De­cem­ber-end. On Thurs­day, gilt prices ended up with the 10-year bond yield clos­ing at fresh eight-month low, while a sharp fall in Brent crude oil prices be­low was seen at $60 a bar­rel on ex­pec­ta­tion that the Opec may not re­duce crude oil pro­duc­tion.

The 7.17 per cent-2028 gilt ended at 7.42 per cent com­pared to 7.43 per cent at open and 7.44 per cent at close of pre­vi­ous ses­sion.

On Wed­nes­day, the six mem­ber mon­e­tary pol­icy com­mit­tee unan­i­mously voted to keep repo rate un­changed and at the same time low­ered their in­fla­tion pro­jec­tion for the sec­ond half of the cur­rent fis­cal year, given the sharp fall in oil prices cou­pled with sta­bil­is­ing ru­pee.

This led to strong FPI in­flows into lo­cal bonds. FPI bought Rs 2,734 crore worth of G-sec on Wed­nes­day fol­low­ing the re­lease of RBI-MPC pol­icy state­ment.

Adding to this, crude oil prices fell sharply after oil min­is­ters from Saudi Ara­bia, Iran and Venezuela hinted at com­fort with cur­rent out­put lev­els. Brent crude oil fu­tures for Fe­bru­ary de­liv­ery traded 4.35 per cent down at $58.884 a bar­rel on Thurs­day.

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