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Commentary

Gilt yields fall off the floor, prices near all time highs

I’ve been tracking the RBI’s Negotiated Dealing System all day today and it’s unbelievable. All G-Secs have risen HUGELY in price, from yesterday to some obscene levels.

The yield of the 10 year G-Sec, a benchmark in a way, is at 5.27% as per Reuters.

Indian federal bond yields tumbled to their lowest since May 2004 on Tuesday as expectations grew the central bank would cut rates, while speculation of a reduction in fuel prices lifted sentiment for debt.

The benchmark 10-year bond yield <in082418G=CC> closed at 5.27 percent after touching an intraday low of 5.25 percent, its lowest since May 2004. It had closed at 5.55 percent on Monday.

I want to chart this stuff – I think the prices are at all time highs for the 2018 bond and the 2036 bond. Not only have the 10 year bond prices risen (by 1%), the rise in prices of the longer term bonds is spectacular – nearly 2%. This kind of move is an earth shattering event usually, but we all know that these are not usual times.

Gilt funds should go strongly up. I’ve already got a 10% return on my (phased) investment into the ICICI Prudential Gilt Plan, in 1.5 months. I’m holding for another 20-30% return within a year.

Note: I have been told by two people now that ICICI’s mutual fund arm is pushing it’s “income plan” whenever they want to invest in the Gilt fund. The income plan has much higher costs (the fees are 2x the Gilt plan, nearly) and invests a good chunk in corporate bonds too. Now they say corp bond yields will come down as well, because the spread is too high. If you look at the US – a much more developed market – corp bond yields are still very high and gilt yields are at all time lows. The spread need not ever come down, and in India we will see our share of corp defaults.

Plus the income fund has a 2% exit load (versus only 0.75% for the gilt fund).

So I would never go with the income plan – I’d stick with the basis. Gilt is gilt, and only gilt.

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