India Bond Impact(Fixed Income report): No Please don’t cut rates, RBI

Bond yields have cut to less than 8.2% on the 2021 and 2022 10 year bonds and less than 8.5% on the 2032 20 year bond while markets are in a tizzy running commentary on RBI cutting rates ahead of the policy announcement tomorrow. However the bond markets per se have a lot of mature buyers who are pretty confident of no cut in rates and an early start will take yields down much faster from here tomorrow in pure volatility speak if the Guv’nor does change gears on his stated policy early. However our outlook with rating agencies being stable we have definitely grown into a bigger more liquid bond market esp with good returns for gilt investors in the last quarter.

Yields should firm up at slightly higher after the policy announcement tomorrow either immediately or int he next one month before the March announcements of rate cuts hit the wires.

RBI has also repeatedly clarified that no CRR cuts are likely and it has allowed the use of the MSF with SLR collateral , the same may be reitereated tomorrow

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