DEBT MARKETS TO REMAIN CHOPPY
Yields have corrected sharply & yesterday 10 year benchmark closed at 5.88%. This is on acount of supply concerns. One auction is going to be announced on Friday and balance Rs.15000 crs in February. This will keep pressure on the yields for some time. Also, rate cut might or might not happen on Policy announcements in Jan end and maybe postponed to February. However, there is consensus in favour of rate cuts.We still maintain positive view on southward journey of interest rates with a possibility of deflation by March end.
With inflation having gone upto 5.60% from last week’s 5.24%, 10 year currently is hovering near 6% mark.
Word of caution is that Govt might have to resort to additional borowing of close to Rs.25000 crs if 3G auction gets further postponed. This will have supply side pressure for some time with 10 year breaching 6% as well in the near term. Markets will remain choppy from now to March with intermittent rise in yields.Treat these as investment opportunities.
With various Govt agencies speaking different languages, investors are clueless as to the near term direction the markets will take. Hence, it will be wise to be nimble footed and take some trading call of exiting between 5.25% to 5.50% & investing near 6% levels. This should enhance overall portfolio yields and safeguard your portfolio from unncessary market volatility.
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