The benchmark return can cross the 6.4% mark

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The bond market continues to wait for much needed central bank support even as yields hit 6.4% again this week. The benchmark yield closed the week at 6.39%, up four basis points from the previous week.

One of the two contributing factors to the rise in yields, US Treasury yields, softened this week. The 10-year US Treasury yield fell to 1.55% last week from 1.64% the week before. However, crude prices, which kept the pressure on domestic bond yields, remained at higher levels last week. The Brent price crossed $ 86 / barrel before closing the week near the $ 84 / barrel mark.

Higher threshold

In addition, the closing rate for auctions of variable rate repurchase agreements remains high. The central bank conducted a seven-day VRRR auction in which the threshold stood at 3.99%. Earlier this month, the threshold for a seven-day VRRR auction had risen to 3.61%. The RBI also announced a 28-day VRRR auction next week, indicating a higher grade. Market participants say that although the central bank’s position on liquidity has been made clear during monetary policy and an increase in the amount has been expected, an increase in the content does not help under the conditions. current market where nothing helps returns.

Vijay Sharma, senior executive vice president of PNB Gilts, believes that RBI support for the bond market is currently lacking. “Recently there was an announcement for a VRRR auction that had a higher duration of 28 days. All of this seems to indicate that the central bank is still not uncomfortable with the current level of yields. The market has lost momentum and until the moment you see a helping hand from the RBI, you can continue to see returns at those levels. The market attempted a rally but quickly lost momentum. Every day the central bank delays its return, the chances that the benchmark yield’s 6.4% level will be exceeded increases. The only thing that received any kind of favor from the market was floating rate bonds. The central bank holding an auction massive number of switches, even the demand for FRB took a hit, ”he said.

Next week, bond markets around the world will closely monitor the US Fed’s meeting where it is expected to announce the unwinding of its bond buying program.

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