What is dipping the yield from bonds?


With the averagely swell monsoon spells investors are rushing towards sovereign gold bonds instead of government bonds which have reached a new three-month low. This is because with the rainfall with its moderately swell amount of showering brings in the dread that even sharper rate cuts will slash their yields.

As per reports the benchmark yield of bonds has hit its lowest last Friday as of 7.24 percent which further pushed up the prices as many institutions including commercial banks buying sovereign gold bonds. Dealers further said that this level of low was last seen on 18th June, 2013.

Several fund managers of fixed income assets said that long term government bonds are usually high on demand amongst the investor community. These days with the anticipated rate cuts and the chances of that happening increased most investors feel more comfortable to build in long duration in their portfolios as they feel the upcoming months ahead will see a slash in yield rates.

Fund managers of major organizations have also said that with the monsoon rains picking up the pace of normalcy the chances of easing of on food inflation prices are warmer and thus, the RBI will get better chances to slash the interest rates.

The rates of bonds cut in slightly lower than what they were on Thursday, at 7.25 percent. However, the bond yields have dipped by 24 basis points over the last month because the investors’ overseas have also joined in the spree of buying over the declining global liquidity.

As per data, foreign institutional investors have invested a net amount INR 7000 crore in Indian debt securities as of this July, this is the highest amount of monthly inflows in 2016.

The predictions of financial experts associated with organizations such as Kotak Mahindra Mutual Funds suggest that this sentiment of the dipping interest yield is further pushing down bond yields and unless any external exigency shows up the yields may even dip further lower to 7 percent in the next few quarters.

With a declining bond rate it is expected that the corporate borrowing costs will further take a dip as companies would need to raise funds with bond sales at a lower rate.

Also many experts believe that this trend will further intensify moving forward if the GST bill is passed in the upcoming monsoon session of the parliament. But on an optimistic note some experts believe that foreign investors will invest around USD 2 to 3 billion into Indian debt securities by the end of December to revive the cold situation.

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