- Wealth PMS (50L+)
The 10 year, 2018 bond ended at a yield of 6.48%, which is a new recent low in the price (111.6).
Reasons, they say, is that the government needs to borrow a lot, and the markets will be flooded. But put one more crisis – one bank, one real estate player, or an international credit situation – and people will rush to buy government bonds, regardless of any of these excuses. Yet, prices are going down daily, and it’s a cause for worry.
Inflation at 4.39% is much lower and controlled – and if we go this way we’re hitting deflation in the second week of April. Rate cuts are very likely, and quite interestingly, if we deflate, the government needn’t borrow; it can simply print the money regardless. The deficit is about 45K cr. – which is nothing by most standards.
The fear is that rating agencies will de-rate India – but let me ask you this: Who the F cares about the rating agencies anymore? They were incompetent about Enron, they were incompetent with Lehman, and the fact the Indian government PRINTS our currency should give any Rupee Bond issues a AAA+++ rating, but they won’t do it because they’re so darn stupid (and of course, biased). At this point we’re not even asking for foreign money (and it seems like should we ask, they’re all lined up – right now they have a CAP on g-sec investments).
[Note: This might sound like a justification since I own gilt funds. And I’m wondering if it is too – but I’m convinced that within a year, we see 4% yields]