Debt market review: December 2020

Debt market review: December 2020

Last updated: 11 Jan, 2021 | 07:43 am

Debt market review: December 2020

Global Debt Market

  • Globally, bond yields in December’20 were volatile, some countries saw their yields spike while some saw a decline from the previous month.
  • In the year 2020,  most countries witnessed a fall in their sovereign bonds despite government debt levels spiking to new highs as the governments try to uplift their economies with increased fiscal spending

Factors pushing yields higher during the month were 

  • The USA approving fiscal stimulus package 
  • Brexit trade deal between the EU and the UK 
  • Regulatory approvals for COVID vaccines 
  • Macro data points indicating quicker than estimated economic recovery

Factors pushing yields lower during the month were 

  • New COVID strain found in the UK
  • Renewed lockdowns in several parts of the globe

India 10 year yield

  • The average benchmark 10-year GSec yields declined by 2 bps from a month ago, it stood at 5.87% in December 2020. The decline in GSec yields was aided by RBI’s accommodative stance on in the monetary policy. More than expected fall in retail inflation also put downward pressure on the yields. 
  • Yields are expected to remain rangebound with continued OMO (Open Market Operations) purchases by RBI amid the high supply of government securities and prevailing price pressures.

INDmoney Analysis

Stick to AAA-rated low duration funds and bonds over high duration funds, and long-maturity bonds as yields will remain volatile in the near future but in the medium term (2-3 years) the rate cycle is expected to bottom out and move up.