Bloomberg | Dec 02, 2019 23:22
(Bloomberg) -- India’s yield curve rose to its steepest in nine years as bets mounted on further monetary easing and fiscal stimulus following the country’s deepening economic slowdown.
The yield spread between the most-traded 10-year notes to two-year debt is at its highest since 2010 on concerns the government will expand record bond sales. Firstrand Bank Ltd. expects the difference to widen by as much 20 basis points from Monday’s 115.
“As long as there is a lack of clarity on how the fiscal deficit targets will be met and as long as the RBI maintains it’s not bothered about market yields, the curve will continue to get steeper,” said Mahendra Jajoo, head of fixed income at Mirae Asset Global Investments Co. in Mumbai.
Policy makers have taken multiple measures to arrest the slowdown in recent months, while leaving much of the stimulus burden to the Reserve Bank of India. Authorities now have to make the difficult choice between slipping on the deficit target of 3.3% of GDP this fiscal year to boost growth or prolong the pain by cutting expenditure.
Data on Friday evening showed gross domestic product grew 4.5% in the September quarter from a year earlier, the first time it’s been below 5% since 2013.
The weak GDP print will likely pave the way for a sixth interest-rate cut of the year later this week, helping to anchor yields on the short-end of the curve.
Meanwhile, growing skepticism about the government meeting its budget targets means long-tenor bonds are under pressure despite and more than 2 trillion rupees ($28 billion) of excess liquidity in the banking system. The yield on 10-year notes was little changed at 6.47% on Monday.
“There are indications that it is going to be very difficult to meet the deficit targets,” said Jajjo. “Everybody is looking forward to the RBI for its guidance on the yield curve steepening,” he said.
Written By: Bloomberg
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.