Domestic Bonds

US Taper Talk sends first thrill to local bond and stock markets

In the United States, the Taper Talk sent the first thrill through the local bond and stock markets, but none of the market’s geeks are willing to stick their necks out and call it a potential bloodbath that investors need to do. prepare – if and when this wind – down occurs.

On Wednesday, the Federal Open Markets Commission (FOMC) released the minutes of its April Monetary Policy Review which signaled that the US central bank may reconsider its $ 120 billion bond purchase program in the next few months. meetings.

“A number of participants suggested that if the economy continues to make rapid progress towards the Committee’s goals, it may be appropriate at some point in future meetings to start discussing a plan to adjust the pace of purchasing of products. ‘active’, according to the minutes.

The bellicose tone of the FOMC minutes recalled the reactionary panic of 2013 after Federal Reserve Chairman Ben Bernanke first hinted in May that year of a possible withdrawal from the buying frenzy. of Fed bonds, precipitating the now famous tantrum.

On Thursday, the domestic markets did not react with great concern: the Sensex fell 338 points with the stumbling attributed to “weak global indices”, mainly the 165 point drop in the Dow Jones Industrial Average the day before.

The rupee – severely troubled by the 2013 tantrum – did not react at all to the FOMC minutes and in fact gained 6 points to close at 73.12 against the dollar, continuing its one-month appreciation against the green ticket.

But some experts were watching the situation closely. “The Fed minutes signaled a slowdown in bond buying at one point, signaling a policy shift going forward, which will impact emerging markets,” said Vinod Nair, head of research at Geojit Financial Services.

The Federal Reserve bought $ 80 billion in U.S. Treasuries and $ 40 billion in agency mortgage-backed securities each month until further substantial progress was made toward its “maximum employment targets.” and price stability ”.

At the end of August 2013, the rupee plunged a record 256 basis points, starting a free fall after foreign investors dumped more than $ 1 billion in Indian stocks in eight frantic trading sessions.

Several experts estimate that India is now better placed with foreign exchange reserves of 589 billion dollars. In addition, he has a manageable current account deficit now; the latest data show it at $ 1.74 billion at the end of December 2020 against $ 87.8 billion in August 2013.

Meanwhile, the Reserve Bank of India is expected to persist in its accommodative policy at its next three-day review meeting scheduled for June 2.

The central bank has maintained excess liquidity since June 2019, which currently stands above Rs 7 lakh crore.

G-SAP buffers returns

The RBI on Thursday offered to buy Rs 35,000 crore of bonds as part of the second round of the G-Sec or G-SAP 1.0 acquisition program under which it offers to buy Rs 1 lakh crore of government paper from the first quarter in open markets.

The RBI received offers for Rs 1,21,696 crore against the notified amount of Rs 35,000 crore.

The yield threshold of the 10-year benchmark – one of the papers for which RBI’s bid on Thursday – was 5.95%, which led to a 5.85% drop in the 2030 bond. at 5.96% on the bond market.

The RBI is committed to lowering the yield on 10-year bonds below 6% and smoothing out the yield spread between different maturities with the ultimate goal of lowering government borrowing costs.