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Bond Investors Made a Killing in Rajan’s Tenure

Bond Investors Made a Killing in Rajan's TenureGold Silver Reports — Bond Investors Made a Killing in Rajan’s Tenure — Sovereign bonds return 41% in 3-years, more than double of that earned in previous 3 years

Bankers and bond traders may have been critical of Reserve Bank of India governor Raghuram Rajan’s perceived antiinflation policies, but they have gained the most from his decisions .

Returns from sovereign bonds (rupee sovereign debt) have been 41% in his three-year tenure as governor, which is more than double of what they had earned three years before that .

“The outperformance over the past few years can be attributed to a significantly improved macro-economic outlook on the back of a new g o v e r n m e n t , “ s a i d Vi j ay Santhanam, managing director and head of risk solutions group, Barclays India. “A normal monsoon and RBI’s focus on systemic liquidity through open market operations should continue to support buying interest in the bond markets in the near term,“ he said.

On Wednesday, the benchmark yield dipped to nearly seven-year low at 7.10%, pushing prices up as investors have drawn comfort from the central bank’s liquidity stance, a key to softer interest-rates .

RBI will conduct more open market bond purchases to prevent the system turning into deficit mode, it said in its bi-monthly on Tuesday.

“Rajan’s tenor could be highlighted for developing distinctive approach to policy stance and policy strategy , development of liquidity framework through autonomous and discretionary liquidity drivers and better visibility of interestrate regime,“ said Soumyajit Niyogi, Associate Director, Credit & Market Research Group, India Ratings .

When Rajan took over, the benchmark yield was as high as 9%. Since then it has gained about 200 basis points. In absolute terms it is about ~13.

If somebody had invested at 9%, the person has been receiving 9% for the last three years, which is about ~28 compounded annually . So, in reality it would be `28+13 = `41, shows a calculation by India Ratings Research .

During Rajan’s three year-term, foreign portfolio investors have net invested `1.97 lakh crore compared with `92,563 crore invested in three years before that, shows data from NSDL, a depository.

Mutual funds have net invested ` 11.1 lakh crore between September 2010 and August 2013.But after Rajan took charge at RBI, the same investment rose by 33.1%, or `3,68,114 crore, from September 2010 to August 2013, shows data from ETIG .

Globally yields are at historic lows. Nearly three-fourth of global bonds are yielding less than 2% while more than $13 trillion worth of bonds are yielding less than zero.This has prompted investors to scout for higher yields with relative safety of investment . — Neal Bhai Reports

Bond Investors Made a Killing in Rajan’s Tenure

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