WARY OF LOSSES IN Q4, PSBs BOOK PROFITS IN BONDS

According to money market sources, PSBs have been actively selling shorter-tenure securities from their held-to-maturity (HTM) portfolio to book whatever profits they can. This is seen as a sign they are preparing for big losses in their bond portfolio this quarter. Dealers say if this selling continues, there would be further pressure on long-dated bond yields. Long-dated government bonds form the largest component of the treasury portfolios of most Indian banks.


Over the past few sessions, yields have risen dramatically here, hitting portfolios of most nationalised banks. By booking profits at the shorter end, banks are hoping to offset some of these losses. When yields rise, bond prices fall.

“As the quarter draws to a close, most banks aggressively start trading securities, in the hope of boosting their income,” said Arun Kaul, executive director, Central Bank of India, a state-owned bank. “So whenever there is a chance to book profits in a portfolio, banks would sell, irrespective of the short-term trend in yields,” he explained.

Banks’ bond portfolios in the country are classified into held-to-maturity (no mark-to-market required,) held-for-trading (for short-term trading opportunities) and available-for-sale (for immediate trading) categories.


Source: http://economictimes.indiatimes.com/markets/stocks/market-news/Wary-of-losses-in-Q4-PSBs-book-profit-in-bonds/articleshow/5594519.cms