Bond yields at pre-Covid highs beat mortgage rates

MUMBAI: Bonds fell to pre-pandemic low on Monday even as sensex jumped more than 1% to close 651 points higher and the rupee gained 27 paise. The government’s cost of borrowing, as reflected in the yield on 10-year bonds, has exceeded mortgage rates offered by most banks to reach a two-year high of 6.59% . While Union Bank of India loans start at 6.4%, Bank of Baroda offers them at 6.5%.
Bond prices have an inverse relationship to yields, so one falls while the other rises. In equities, markets opened strong, following Asian equities and closed higher on growth-friendly expectations. The Nifty also rose 18,000 to close 1.1% higher at 18,003. However, analysts expect volatility as the Omicron variant continues to spread rapidly.Read More : Available Payday Loans

The rupee rallied to a two-month high, supported by the inflows. The national currency closed stronger at 74.04, down from 74.31 on Friday against the dollar – the highest since November 9. A record fundraiser from Reliance Industries and other capital inflows should keep the dollar in check.
Bond markets, however, saw a massive sell off. The 6.59% yield on the 10-year bond is the highest since January 31, 2020. The benchmark 10-year bond closed at 6.54% on Friday. Sentiment in the bond market changed after the RBI became a net seller of bonds – a move to support measures to normalize the excess liquidity injected to help markets during the pandemic. Bond yields rose ahead of December’s inflation figures, due Wednesday.
Dealers also have a negative outlook on inflation, with global oil prices firming amid concerns over supply constraints due to geopolitical tensions in Libya and Kazakhstan. In addition, bond yields rose on the back of a surge in US yields. Lower unemployment in the United States should prompt the Federal Reserve to raise rates sooner than expected.
In the domestic market, sensex opened significantly stronger at 60,070 and hit a high of 60,427 in intraday trading. Bank stocks were among the main gainers. During the day, rumors circulated that the government may increase the limit on foreign investment in public sector banks to 74%. Among lenders, SBI gained the most (2.5%) anticipating better results in Q3. HDFC (2.4%), Kotak Bank (2.3%), ICICI Bank (2.2%) and Axis Bank (1.7%) were the other big winners.
However, the winning rupee also took its toll on some stocks. Wipro fell 2.5% and was the biggest loser among sensex stocks. The other losers in the index were Nestlé India (-1.1%) and Asian Paints (0.6%). Sun Pharma, Dr Reddy’s and IndusInd Bank also closed in the red.