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Fixed Income

Bond Market Volumes at Highest Ever, Yields at 3 year Low

Bond market volumes have gone absolutely nuts. Yesterday, the official figure was 123,000 cr. in the government bond market, the NDS-OM. Note: you and I can’t even get in here – it’s a market that is dominated by banks and primary dealers, with other players being FIIs, Mutual funds, Insurance Companies etc.

From average volumes of less than 10,000 cr. per day from 2005 to 2011, barring a few exceptions, the market has taken off substantially.

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In Jan, the hopes of a rate cut took volumes up to an average of 40,000 cr. a day. And now, after the rate cut in april, volumes have gone off the rocker. Yesterday – May 9th – was the highest ever turnover in the market, at over 123,000 cr. Note that this is about six times higher than the entire stock market (non-derivative) turnover – and just a year back, the volumes in both markets were the same. Look at the six month volume move:

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In addition, the 10 year bond yield is at 7.60%, the lowest in three years. Banks will make profits hand-over-fist, as they keep buying. While it might be true that much of this market is intra-day, it still is a heck of a lot of volume.

We’re still at a huge spread to the US or European markets, but with a 0.30% jump since April we’re closing the gap. It will be interesting to see how the week closes.