In an interview to NDTV Profit, Mohan Shenoy, Treasurer, Kotak Mahindra Bank, said that bond yields will be rangebound. “A likely hike in the crude oil price is negative for the bond market,” he added. As far as the rupee is concerned, he said that it is likely to trade in a range of 54.5-56 a dollar.
Below is a complete interview. Watch the accompanying video here.
- What is your outlook on the bond yields? Are they relatively rangebound?
- You are right. The bond yields will remain rangebound for quite some time. Even though there are certain negatives on the bond side, those negatives will not translate into the yields going up simply because there are positives that are neutralizing the negative impact on the bonds. The negative impact is led by the open market operations (OMOs). The market was expecting an OMO from the Reserve Bank but that has not materialized. So, that comes as a disappointment for the bond market. Secondly, the crude oil prices have moved up to $91 per barrel and there is an expectation that it could move up further to $103-104 per barrel in the coming weeks.
If the risk-on rally continues in the global financial market, it will be negative for the bond market. The third factor is the supply pressure. We still have about Rs 2 lakh crore of issuance to go. So, a large supply is in the pipeline and is also a negative. Plus, there are negatives like the monsoon has been below average so far and that may have some impact on the monetary policy. The way the monetary policy will be announced in the coming months - it is also putting pressure on the bond market. On July 31, we have the next RBI policy. But not many bond markets are expecting a reduction in the policy rates or in CRR in that particular policy review. So, there are the negatives, but then there are positives. One of them is the additional limit given to the FIIs for auction.
The interesting factor is that most of the bonds purchased so far have gone into the investment books of the FIIs. They will not be sold because they have gone for maintaining the statutory liquidity ratio. Therefore, there is no selling pressure in the market.
Lastly, all the participants in the bond market have realised that eventually there has to be some sort of a rally in the bond market. If not today but in the second half of this fiscal. So these factors are making the bond market completely rangebound.
- The general sense in the market is that $5 billion would be easily taken up. But since the pool of investors has widened, it will be interesting to see who comes in and takes up that limit....
- I agree. Generally, if there is no restriction on selling or if there is no lock-in period, such limits have been lapped up the FIIs quite comfortably under all scenarios. Therefore, I expect to see a good response from the FIIs as far as this auction is concerned.
- If you look at how the rupee has recovered from the low four trading sessions ago... the rebound has been pretty sharp?
- f you look at what has happened to the euro, there has been a significant rebound. Euro was trading somewhere around 1.24 and now it has moved to 1.26 and the oil also went up, which actually indicates that there is a risk on environment in the global financial markets and if emerging markets do better, the equity markets will start doing well.
- Where could it go in the absolute near term?
- Just like bonds, the rupee also will go through a period of rangebound activities. The rupee is likely to trade in a range of 54.5-56 a dollar.