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Economy

This Week: Banks, Credit Growth and Yield Curves

A volatile week on Dalal Street has ended. With the Nifty closing at 5305, the week saw us go all the way down to the 5160 levels and recover from there; FIIs, on the back of the GS story, sold about 1000 cr. in the first two days of the week and bought back all of that in the course of the next three days.

Banks were the strongest through the week. SBI and ICICI Bank led the pack, which HDFC Bank underperformed.

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Bank lending went to 16.95% with data of April 9 announced this week. Fairly healthy, I would say:

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Yet another 12,000 cr. auction went through smoothly – but the yields are going up. The 10 year has inched back to 8.06% from the under 8% levels we saw earlier this week. The 6 year bond is now trading at 7.64% which makes for a fairly steep yield curve.

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(Tenor = actually the year of expiry, 10 meaning 2010 etc.) Basically everything above 2015 trades at 7.5% or more – the 2028 bond must have been a freak trade. This graph is borrowed from CCIL and is all wonky – I need to generate one myself.

Btw, Steep yield curves are good for banks; remember they borrow short and lend long, so if short term borrowing is cheap and long term is expensive…you get the picture.

  • gk says:

    >Globally, banks will be facing another crisis. Earlier crisis came because of "ppls can't pay." This crisis will come because of "ppls are not willing to pay." It will surely paint disinflation scenario. Deflation will be felt by banks because they will be quiet fearful to lend for ppls to buy home car and inflation will be felt by consumers because of rising energy, food and other essential items.

    All in all, developed nations bond yields is definitely painting deflation/disinflation scenario. Historically, stock mkts never go up in such cases for atleast a year. Indian mkts seems to be topped out at 5400 and may not go up or probably slip to 4000 by yr end.

  • anurag says:

    >Dear Deepak,

    I watched with great interest both of your video's at youtube.I must really say they were excellent.But I felt you could have dwell more on than subject.

    Thanks abd regards
    Anurag

  • Anonymous says:

    >that looks like free money. it sure is not.
    so with such steep yield curves – where is the catch?

    tall.com

  • Anonymous says:

    >Greek Bonds trading at 13.5% yield. Seems very high. Does it mean risk aversion will be back? What happens to Indian 10 year yields? Will it also go up if there is flight from developing nations debt? Will we reach 10% yield?

    MK