The Economic Times daily newspaper is available online now.

    Government bonds rise to two-week high after rating upgrade

    Synopsis

    Foreign portfolio investors have nearly exhausted the investment limit in sovereign bonds which is at Rs 1.87 lakh crore. Fresh limits are released through RBI auction.

    ET Bureau
    MUMBAI: Indian government bonds rose to a two week high after Moody’s Investors Services upgraded the sovereign rating for the first time in more than a decade, but gave up gains as investors would look to see how the government progresses on its borrowing for the rest of the fiscal.

    Yields fell as much as 12 basis points to 6.94%, the lowest level in about two week, but erased the advance to end at 7.05%, a tad lower than its previous day close. A basis point is 0.01 percentage point.

    “Rating upgrade will certainly be a key positive for investors over a period of time,” said Jayesh Mehta, MD and Country Treasurer at Bank of America. “The benchmark yields showed strength initially. But, the demand-supply dynamics remains the same as FPI limits are nearly full. Banks too are cautious to take fresh gilts position due to their recent mark-to-market losses with a surging benchmark yield. ”

    The upgrade came as a big relief for the bond markets which has been witnessing a sell off pushing the yields to a 14-month high amid fears that the government may breach the fiscal deficit target of 3.2 percent of the Gross Domestic Product for the year.

    Foreign portfolio investors have nearly exhausted the investment limit in sovereign bonds which is at Rs 1.87 lakh crore. Fresh limits are released through RBI auction.

    Investors in bonds have also been selling short for the past few weeks as they expected the supply from the government to accelerate as the revenue collections is faltering due to the Goods and Services Tax hiccups. Covering the short positions also helped the early rally in bonds.

    “Overnight short-positions triggered sharp fall in bond yields,” said Naveen Singh, senior vice-president at ICICI Securities Primary Dealers. “The rating upgrade is just a sentimental boost, which was also reflected in RBI’s auction Friday. But it doesn’t change ground reality that inflation has bottomed out and fiscal worries are still looming. Yield may continue to inch higher as demand supply still unfavourable.”

    In RBI’s Friday auction that aimed to sell Rs 15,000 crore worth of government bonds, there was an unusual element. For one set of benchmark some public sector banks were seen bidding aggressively. A bunch of 11 bids grabbed the entire lot of Rs 8,000 crore bonds compared with 60-70 bids, normally seen in weekly bond-sales.

    The yield is likely to hover around 7% in the coming weeks with moderate trading volumes ahead of year-end as other macro economic factors like inflation and fiscal deficit would dominate.

    “The rating revision will boost the market sentiment,” said Sandeep Bagla, associate director, Trust Capital. “But, other factors like fiscal overshooting, global yields rise across emerging markets need to be taken into account as well. Overseas investors too will be encouraged to stay invested in India.”



    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more


    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
    The Economic Times

    Stories you might be interested in