Banking stocks fall after bond yields rise over 4% in four days

Banking stocks fell in Wednesday trade after 10-year government bond yields rose 4.35% since April 5, 2018. On April 5, the yield stood at 7.127%. It fell off the recent high of 7.780 reached on February 22, 2018.

While the Sensex was down just 20 points at 33,859 level, the BSE Bankex was trading 250 points or 0.88% lower to 28,118 at 12:32 pm.  

On the bankex, 7 stocks were trading in the red with PNB (3.04%), SBI (1.96%) and Bank of Baroda (1.70%) being top losers.

Federal Bank (2.11%), Kotak Mahindra Bank (0.49%) and IndusInd Bank (0.05%) were the top gainers on the index.

Bank Nifty too was trading 180 points or 0.71% lower at 25,046 points

Public sector banks are typically the biggest buyers of govt bonds. They are likely to see a fall in treasury income in March quarter with a spillover effect in FY19 due to rising bond yields.

Banks are required to mark to market the individual scrips in available for sale at quarterly or more frequent intervals and held for trading at monthly or more frequent intervals and provide for net depreciation.

If a security is purchased at a certain price and the market price later fell, the holder would have an unrealized loss, and marking the security down to the new market price would result in the mark-to-market loss.

In March, brokerage Credit Suisse warned that state-run banks, which are typically the largest investors in sovereign securities, could lose more than Rs 200 billion ($3.1 billion) in the January-March quarter, due to a continued spike in bond yields and as they held more bonds than are required by the regulator. That would be three times more than their losses on bonds in the preceding quarter.