Inflows from passive funds into the government bond market will be significantly lower this year and for active flows, the trend is flattish-to-negative, feels Mahendra Kumar Jajoo, CIO-fixed income, Mirae Asset Investment Managers. He tells Anupreksha Jain that as the rupee aligns with the real effective exchange rate (REER), foreign investors will look at India positively again. Excerpts:
Where do you see yield on 10-year benchmark heading towards by the end of March?
By March-end, the yield on 10-year benchmark is likely to remain in the current range of 6.65-6.70%. Since it is also the end of a quarter, people are more focused on liquidity management and balance requirement. However, over the next three-to-six months, it (yield) may inch further downwards to the 6.40-6.50% band. The downward trajectory is expected as the Reserve Bank of India may cut rates twice more. Earlier the expectations were of a total cut of 50 basis points but now the view is the regulator may cut rates by a cumulative 75 basis points.
ALSO READIs the Rs 3,000 crore NSDL IPO opening next month? 3 key things to know The domestic government securities (G-Secs) market seems to have disassociated itself from the US market? Can we say that there will be more focus on domestic factors, going forward?
Directionally, India is still integrated with the global market. As far as this recent divergence is concerned, in last three years, the spread between the US treasury and the G-Sec yields has come down from 500 basis points to 200 basis points. With the domestic economy doing well with inflation largely well behaved and the RBI being more focused on domestic factors, domestic yields were largely stable while US yields were volatile. Moreover, the domestic fiscal situation is much better than that of the US as fears of a rising trade deficit have resurfaced with Donald Trump’s return as president.
Currently, the G-Sec curve is flattish while there has been an inversion in the corporate bond market? What is the reason for the inversion and when can we see normalisation in the curve?
Banks have been hunting for deposits. Consequently there has been an increase in the supply of short-to-medium-term certificate of deposits. Whereas at the longer-end, in the corporate bond market, there is not much of a supply, but there has been good demand from insurance companies and pension funds.
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