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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..

    Cheers

  • 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.

    http://marcfaberblog.blogspot.com/

    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.

    adonis!

  • 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
    Vikram

  • veeru says:

    >Hi
    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
    veeru

  • 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.

    Thanks,
    Madhab