Debt Market Update
Reason for recent rise in yields in last 7-10 days
- Foreign Portfolio Investors (FPIs) have redeemed their money and flight to safety assets from emerging markets like India. All are chasing dollar now.
- Seasonal stress of March
- Even lot of entities in lockdown and shoring up on cash.
Measures taken by government and future
- Variable rate repo auction for INR.1,00,000 Crore in two traches as under: March 23,2020: INR.50,000 Crore & March 24,2020: INR.50,000 Crore.
- The Reserve Bank has decided to advance the second tranche of purchase of Government securities under Open Market Operations (OMOs) for ₹ 15,000 crores to March 26, 2020.
- Total Open market operation plan for this month is INR.30,000 Crore.
- The Reserve Bank of India (RBI) announced that it will undertake a six-month US Dollar sell/buy swaps of $2 billion this month.
- Avoid AA, A and unrated papers even though they are offering high YTM as this present slowdown may increase the balance sheet stress.
- Invest in AAA rated and sovereign papers with duration of 3-5 years.
- 3-5 years AAA corporate instrument are trading at 250bps to repo and money market yields are trading at 150 bps to repo and hence we see opportunity here.