Thursday, May 26, 2011 14:55 Hrs IST
Money Market Rates to Trend up In a Gradual Manner
DSP BlackRock Mutual Fund – Fixed Income Market Outlook
Bond market participants are cautious amid high credit offtake, geo-political uncertainties and rigid headline inflation.
We expect benchmark 10 Yr yield to remain range bound with an upward bias keeping in mind the recent rate hike by the central bank and elevated inflation levels. We expect to see the 10Yr trading in a range of 8.30-8.40% pa at its peak.
Geopolitical risk is a major concern, directly tied into oil and FII flows. High oil prices could upset the fiscal balance while the volatility in FII flows could push up the current account deficit. This could lead to corporate spreads widening from their current levels. Currently at 25-40 bps over comparable bank CD assets, could widen to 50-60 bps, close to historical average.
Money market rates have seen some softening due to easing liquidity. We expect money market rates to trend up in a gradual manner due to the anti inflationary and restrictive monetary policy stance maintained by the RBI.