Skip to main content

Bond prices are up because of Insurance buying

 

BOND prices rose slightly as insurers made their purchases taking advantage of the high long-term yields.

Traders say among the insurers that made the purchases include LIC.

LIC's purchases are mostly made through switches.

Such switches imply that short-term bonds are sold and long tenure bonds are bought. Besides, some banks and funds also remained buyers on the back low credit demand and swelling deposits.

The purchases pushed up the price of the 10-year benchmark bond, the 8.79 per cent coupon security falling due in 2021, to Rs 99.71 (face value Rs 100) translating to a yield of 8.84 per cent last weekend. Previous weekend the security had ended at 8.96 per cent. Long-term yields for maturities above 10year, were above 9 per cent. The 29-year security, the 8.4 per cent coupon, falling due in 2040 was

priced at Rs 91 that translated into a yield of 9.2 per cent. This was a particular favourite for insurers like LIC, who have long term liabilities.

Quantum's Mutual Funds head of fixed income Arvind Chari said, "The increased limit for foreign institutional investors helped bonds. But the rise in bond prices is still far short of a rally.

Bonds could fall back gain." Last weekend, the overnment had enhanced he limit for FII investment into government se urities by another $5 bilion (Rs 25,000 crore), tak ing the overall limit to $20 billion.

But a fall back in yields is expected beginning next month onwards, in view of the tight liquidity conditions in the financial mar kets. The tight cash condition was evident from bank borrowings from the Reserve bank of India. At the weekend liquidity adjustment facility auctions, where banks borrow overnight cash from the RBI, borrowings amounted to Rs 1.06 lakh crore. In fact, most of last week, borrowing stayed above Rs 1 lakh crore. Borrowings, from RBI, or the Repurchase window is done against collateral of government securities.

Risk aversion remained a dominant element in financial markets. The mounting risk aversion, stemming from the worsening soveriegn debt crisis in Europe, triggered a flow into U S government securities. The ten-year US treasury yield has dropped 33 basis points from the beginning of November.

Besides, European yields are also becoming attractive to institutional investors at this point of

time. The yield on the 10year Italian government bond yield is presently 7.25 per cent (source: Italy, department of Treasury). As a result, traders said, interest from foreign investors in Indian government bonds was unlikely to be significant.

The shortage of dollar supplies in the foreign exchange markets and low capital account flows also sparked a dollar shortage.

The shortage reflected in high short term forward and low long term forward premiums. But there was likely to little reprieve. In the non-deliverable forward markets (off shore trading in Rupees and settlement is done in u s dollars) the dollar was priced at a record Rs 51.71. On the onshore market one month forward was priced Rs 50.61 indicating another round of outflows or another tumultuous week.

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now