Traders see cash tightening in India to drive bond playbook
3 years, 11 months ago

Traders see cash tightening in India to drive bond playbook

Live Mint  

India’s sovereign bond investors are converging on a trade idea for 2021. RBL Bank Ltd. and Quantum Asset Management Ltd. are among those forecasting that liquidity tightening by the Reserve Bank of India will lead short-end rates to rise faster than the long-end -- bear-flattening the yield curve. “Short-end rates, of up to three years maturity, are currently priced aggressively due to excess liquidity and thus carry maximum risk of a reversal,” said Pankaj Pathak, fixed-income fund manager at Quantum Asset Management Ltd. in Mumbai. “The longer segment may continue to get RBI’s support from open market operation purchases and operation twists.” 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. Even as the RBI expects the nation to exit a recession in current quarter, economic risks remain as India is still the second-most affected nation by the coronavirus after the US Higher spending could also add to debt supply pressure, making it challenging to drain excess cash.

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History of this topic

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