MUMBAI: In June, domestic G-sec yields are likely to be influenced by a range of factors, such as foreign portfolio investor (FPI) flows, crude oil price movements, the rupee-dollar equation, outcome of the US Federal Open Market Committee, (FOMC) domestic inflows into the debt market, and announcement of G-sec auctions, amongst others.

Three-month view

The 10-year G-sec yield is expected to react to FPI flows, crude prices, global interest rates, the CPI inflation print, rate decisions by the RBI MPC and FOMC, global cues, and liquidity concerns.

Framework for the outlook

CRISIL provides its outlook on key benchmark rates for different debt classes — 10-year G-secs, state development loans (SDLs), and corporate bonds (CBs) — based on statistical models and inputs from our in-house experts. We also incorporate our views on policy expectations, the macroeconomic outlook, key events (local and global), and market factors (liquidity and demand/supply).

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According to the report, the yield on the new 10-year benchmark government security (G-sec;7.18% GS 2033) opened October at 7.23% and closed at 7.35%, up 14 bps from its September closing of 7.21% and outside CRISIL’s forecast range of 7.23-7.33%. In the first week, bonds traded largely with a negative bias due to a surge in US Treasury (UST) yields and crude oil prices. In addition, the Reserve Bank of India (RBI) hinted at open market operations (OMO) sales in the future to manage liquidity in the market. This led the yield on the 10-year benchmark G-sec to harden by 14-15 bps. The domestic 10-year benchmark yield closed the week at 7.34%.

The second week started on a negative note, tracking a surge in crude oil prices amid geopolitical tensions in the Middle East and due to likely OMO sales. India’s retail inflation printed at a three-month low of 5.02% in September on the back of softer vegetable prices. However, as the week progressed, the bond market witnessed a softening in yields due to a decline in UST yields. The 10-year benchmark yield slipped and closed the week at 7.32%.

The report also includes information on CRISIL’s data and analytics platforms, including Alphatrax and Quantix, which enable clients to assess industry and company-level risks based on CRISIL’s proprietary models. CRISIL ESG Scores help benchmark companies based on their inherent ESG risk using public domain information and a proprietary framework. The company reports, which combine select financial and non-financial data, analytics from CRISIL’s proprietary risk models, and commentary on a company’s financial performance, are used by commercial banks, financial institutions, and non-banking finance companies as part of their credit/risk management process. CRISIL’s SME Gradings, used by lenders, assess the creditworthiness of SME enterprises relative to their peers leveraging CRISIL’s proprietary grading model.

Insights from CRISIL Market Intelligence and Analytics November 15, 2023.

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