India’s 5-year bond set to gain more if RBI cuts rates in February, LIC MF exec says

By Shubham Batra and Dharamraj Dhutia

MUMBAI, – India’s five-year government bond is attractive as its yield could fall more compared with the 10-year benchmark note’s if the domestic central bank cuts rates in February, a fixed income executive at LIC Mutual Fund said.

“If a rate cut materialises in February, we see 5-year to 10-year bond yield curve steepening to 15-20 bps and 10-year yield might head towards 6.50% handle ,” Marzban Irani, chief investment officer – debt at LIC Mutual Fund, told the Reuters Trading India forum on Monday.

Irani expects the Reserve Bank of India to cut the benchmark repo rate by a total of 50 basis points by June.

LIC Mutual Fund managed assets worth 196 billion rupees as on Nov. 30.

India’s five-year bond yield was at 6.67% on Monday, while the 10-year benchmark bond yield was at 6.73%.

A steeper yield curve would mean that the five-year yield will fall more than the 10-year yield.

Yields move inversely to bond prices.

On Friday, the RBI kept its key interest rate unchanged at 6.50%, but lowered banks’ cash reserve ratio by 50 basis points, which will infuse 1.16 trillion rupees into the banking system.

The cut in cash ratio provides relief to the market, but going ahead, the RBI might react proactively through various other liquidity measures, Irani said.

However, open market bond purchases are not warranted given the current bond yield curve, he said.

Irani is bullish on Indian government bonds over the medium term owing to positive demand-supply position, inclusion in global indexes and the government’s fiscal prudence.

Inflation readings, the federal budget, a sovereign rating review and Donald Trump’s policies would be the major drivers for India’s rate decisions, he said.

This article was generated from an automated news agency feed without modifications to text.