The bond market is getting more certain of a likely 50 basis points rate cut by the Reserve Bank of India (RBI) going forward, said B Prasanna, head-global markets group, ICICI Bank.
Bond yields appear to remain stubbornly below 6.5 percent after crashing 10 basis points yesterday to December 2016 lows on slowdown blues.
“It’s been a dream run for bond markets and bond traders. The move started post-budget when there was a relief that there is no fiscal slippage or there was no extra borrowing that the government is likely to do for the year...,” said Prasanna in an interview with CNBC-TV18.
“There are two or three things which are manifesting in the bond markets. The first of course is the crystallisation of the next rate cut and maybe one more. So the market is definitely getting a bit more certain on the fact that there could be a 50 basis points rate cut,” he said. “The second factor is that the sovereign bond issue has a likelihood of taking some supply away from the domestic bond market and third is the liquidity."
He said that the liquidity surplus is currently seen at Rs 125,000-Rs 140,000 crore.
“The 2 topmost triggers which bond markets are looking for right now is what is going to come from the Jalan Committee Report and also the Liquidity Framework Report which is an internal committee that the RBI is working with and what kind of suggestions that the RBI committee is going to come out with," said Prasanna.
“Having said that I would also say that the next 2 RBI policies where there are expectations of a rate cut is also playing a part," he added.