Many investors who invest in sovereign bonds are also betting on short term yields as they expect them to bounce back in the coming months, said industry trackers.
“Bond yields (both short term and long term) remain range-bound in December 2020, with a downward bias. Persistent sticky inflation, high borrowing levels, and a rebound in growth are likely to exert upward pressure on yields,” a Dun & Bradstreet research report said.
There’s growing consensus among traders that the RBI will have to start draining excess cash from the banking system, as abundant liquidity crashed short-term rates and threatened to stoke inflation. Nomura Inc. expects the central bank to start doing so as early as the second quarter of 2021, a Bloomberg report said.
On the other hand, the central bank’s (RBI) decision to maintain an accommodative stance will anchor bond yields and help them to ease. Dun & Bradstreet expects the 15-to-91-day Treasury Bill yield to average around 2.8 per cent – 2.9 per cent and the 10-year G-Sec yield to be around 5.8 per cent to 5.9 per cent during December 2020, the Dun & Bradstreet report added.
The Indian currency that has been under tremendous pressure due to India’s staggering growth and the Covid pandemic could appreciate, the research report said.
Dun & Bradstreet expects the rupee to appreciate during December 2020. Sustained buying momentum by foreign funds amid prospects of a faster economic recovery in India, record low global interest rates and easy monetary policy would help rupee to gain ground. The weakness of the US dollar is also likely to prop up the rupee. However, rising crude oil prices, along with a widening of the trade deficit, might cap some of the gains made by the rupee. Dun & Bradstreet expects the rupee to remain at around 73.5 to 73.7 per US$ during December, the report added.