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Charts & Analysis

Gilt yields jump up suddenly, to 5.75%

Gilt yields have gone berserk – up to 5.75% today. ET says its because the government is borrowing 50,000 cr..

But come on. 50,000 cr. is 1.25% of GDP. This is not a reason for bonds to lose nearly 4 rupees – or 3% – of their price. There has to be some other explanation, my idea being profit booking in general.

Let’s see – prices come first, reasons come later. I still see rates at 4% later this year, so I’m holding.

  • Ashu says:

    >Thanks for the update. This certainly seems volatile going forward, just going by the sheer amounts that are being talked about/ traded.

    I tend to agree with your assumption of profit booking. But I’m not adding more, just holding what I have..


  • vivek says:

    >Seems to be mirroring the US markets.

    Check out the TLT ETF for the US – its down 8%+ in the last 3 days. And, folks have jumped into the inverse short with gusto – TBT.

    There is also rotation into corporate debt. High yield has rallied a lot since last week.

    Pretty much all the morons in the media and fund mgrs (PIMCO, etc) over the last week have been harping about there being a govt bond bubble and characters like Marc Faber scared everybody saying that one of the themes in 2009 will be to massively short treasuries.

    There has been a recent run up too so hopefully just profit booking.

  • ankur says:

    >”prices come first, reasons come later” – simply brilliant! Thats a real Economist statement.

  • adonis says:

    >Hi Deepak,

    Seeing the volatile nature of gilts in this week so far, is it advisable to exit them now and re-enter towards the end of this month, when we have a possibility of rate cut.

    Specially when i own funds with no entry and exit loads.

    Is there any reason for holding right now (discounting the rate cuts in near future, which i understand)?

    I would like to know your view on the same.


  • Ashu says:

    >Bond yield crosses 6.13% on supply concerns.. Another 2% drop in prices?

  • Deepak Shenoy says:

    >Somehow it doesn’t make sense but one has to respect prices. Friday’s inflation number will be determining factor.

  • Vikram says:

    >Hi Deepak

    I recently invested in gilt funds and got a 15-17% return in a month. I expected a few rate cuts and subsequently a higher NAV. Even after the profit booking earlier this week I was not fazed. Yesterday my gilt funds NAV dropped 5-6% in a single day. (:-O)
    Is such volatility usual with an asset like gilts?
    Rates are much lower than they were a month ago, then why are the yields rising?
    Is this truly only profit-booking or a short-term correction or (gulp) a bubble?

    Thanks in advance

  • veeru says:

    I am not much familiar with Gilts and Gilt funds. I would like to know how Gilts work and particularly the inverse relation with interest rates. How is that Gilt funds NAVs rise when interest rates go down?

    Thanks in advance

  • Madhab says:

    >Hello Deepak,

    Do you think there is still some steam left in Gilts or the party is over?

    Though I thought of investing in ICICI Pru Gilt Fund, but I couldn’t. Now I am thinking to do it. I have a 6-8 month horizon.

    Also what is your thoughts on medium term income funds which have both AAA rated papers and Gilts in their portfolio.

    As corporate bond spread is still higher, I assume gains will be more in income funds compared tp pure gilt funds.

    Let me know whar is your view on this.