INSUBCONTINENT EXCLUSIVE:
goes back to a contrarian bet taken two years ago
As the Reserve Bank of India started an easing cycle in 2015, eventually cutting policy rates seven times, bond yields fell to levels not
seen since the global financial crisis
selling long bonds and buying paper that matured in four years or less, while also bulking up on 200 billion rupees ($2.9 billion) of
floating-rate debt from August 2016
That very month, pressure was mounting on the central bank to cut interest rates further as the latest data showed slowing economic
growth.
The benchmark 10-year bond yield would sink to a seven-year low just three months later, raising questions over the strategy
In April, RBI shocked traders when minutes showed a tilt toward tightening, with a hike taking place two months later.
Losses mounted for
local lenders, the biggest holders of sovereign debt.
State lenders probably held 300 billion rupees of losses on bond holdings in the six
months ended March, according to India Ratings Research, the local unit of Fitch Group
The red ink was so deep that RBI allowed banks to spread it out over time.
Trading SecretsBank of Baroda, by contrast, booked a trading
profit of 4.9 billion rupees for the same period, and 14.5 billion rupees for the entire fiscal year
Of the 17 state-run banks covered, only a couple had trading gains, according to India Ratings Research.
Mahajan, who started at Baroda in
prices, a major swing factor for India which relies on imports.
The only other tip he would share is that another turning point may come if
the benchmark bond yield reaches 8.25 percent.
The 10-year bond yield was at 7.84 percent as of 10:30 a.m
in Mumbai on Monday, suggesting that more pain may be in store
Every 10 basis point increase leads to a loss of as much as 40 billion rupees for state banks, according to Anil Gupta, head of financial
model will be continued by his successors
