Interest rates


RateView : CRISIL's outlook on near-term rates

May 2020


Pandemic shadow


Government security (G-sec) yields swung wildly in April, tracking the downward movement in crude oil prices,selling pressure by foreign portfolio investors (FPIs), and measures announced by the Reserve Bank of India (RBI) tocalm financial markets as the Covid-19 pandemic raged.


Yield on the 6.45% 2029 G-sec, the 10-year benchmark, opened the month at 6.29%, reached 6.44% mid-month andclosed at 6.11% – down 1 basis points (bps) compared with its March close of 6.12% – within CRISIL’s forecast rangeof 6.05-6.35%.


In the first half of the month, lack of market participation amid the lockdown, subdued trading volumes due toreduced market hours, and selling pressure owing to the prevailing risk-off sentiment led to the yield trending in the6.40%-6.50% range.


Subsequently, falling crude oil prices and actions by the central bank brought down yields. The second list ofliquidity and regulatory measures announced by the RBI mid-month with an eye on the pandemic led to an easingand the benchmark G-sec went on to close at 6.20% on April 21. The announcement of special open marketoperations (OMO) of simultaneous purchase and sale of Government of India securities subsequently, bought theyields further down to 6.04%.


The gains, however, were reversed as the yield inched up due to risk-off sentiment after the unexpected windingdown of six debt funds by Franklin Templeton, leading to the final reading of 6.11% for the month.