Benchmark return hits highest level in two years on US indices
The local yield indicator hit 6.52%, its highest level since Jan.31, 2020, according to Bloomberg data compiled by ETIG. When yields go up, prices go down.
State government funding costs have also increased by 10 to 16 basis points in the primary market.
“The Omicron effect is not as damaging as you would expect like the first or second wave,” said Naveen Singh, head of trading at ICICI Securities PD. âThe rise in US Treasury yields suggests that the Fed is about to contract its balance sheet, and raise rates after that. This weighed on local yields.
Benchmark US Treasury yields rose about 11 basis points to 1.63% when the local government bond market opened this calendar year. This is the biggest day one increase since 2009, when the world began to emerge from the subprime abyss.
Back home, the benchmark has risen seven basis points this year, weighing on arguably higher state government borrowing.
âUS yields rose sharply after the holidays, with the Omicron wave now seen as less disruptive than the delta wave,â said Vijay Sharma, executive vice president of PNB Gilt. “Back home, state governments are expected to borrow record amounts in January-March and the larger-than-expected auction schedule has been further revised upwards.”
State governments will likely borrow Rs 3.24 lakh crore in the January to March quarter, according to the RBI schedule released on Monday.
Under such conditions, it will not be easy to sell state government loans without regulatory intervention, the dealers said.
Assam borrowed Rs 1,500 crore on Tuesday, offering a threshold yield of 7.12% against 6.97% against a sponging of Rs 600 crore on December 21.
During the same period, Uttar Pradesh offered an additional 16 basis points to raise funds at 10 years on Tuesday.
“Trading volumes did not return to normal at the start of the year,” said Ajay Manglunia, managing director and head of debt capital markets at JM Financial. “Yields are also under pressure amid lackluster trading sessions and uncertainties.”
On the first trading day of the calendar year, g-sec volumes fell to Rs 26,589 crore against Rs 32,779 crore on average in December.
Some traders attributed the yield increases to the RBI’s measures to suck up excess cash.
Between November 10 and December 24, the central bank sold Rs 10,855 crore of government papers. Also this week, he is believed to have sold over Rs 1,000 crore, the dealers said.