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| Bond yields fall to 9-month low |
| BS Reporter / Mumbai Jan 21, 2012, 00:43 IST |
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RBI infuses Rs 10,435 crore through OMOs.
Yields on 10-year benchmark bonds fell to nine-month low levels, as the Reserve Bank of India (RBI) bought illiquid securities through open market operations (OMOs) on Friday. Yields touched 8.12 per cent during early trade, before closing 8.17 per cent higher on profit booking. Yields have eased by two basis points over the week and 39 basis points since the beginning of the month.
"Bond purchases from RBI are helping, but looking at the tight liquidity conditions, markets have also started factoring in some kind of monetary easing action next week," said the head of treasury of a large public sector bank. RBI infused Rs 10,435 crore through bond purchases under OMOs on Friday. It has been matching bond sale auctions with bond purchase auctions under OMOs to support the government's higher-than-planned market borrowing plan. So far, RBI has infused Rs 71,874 crore through eight rounds of OMOs since the start of the second half of the current financial year.
A survey conducted by the Royal Bank of Scotland showed the market was split on expectations of a cut in the cash reserve ratio (CRR) in the third quarter monetary and credit policy review to be held on January 24. "While 51 per cent of the participants expect no change in the CRR, 31.4 per cent expect a 25-basis point cut and 17.5 per cent expect a 50-basis point cut in the CRR," said the report.
"Yields may return to 8.25 per cent levels, in case RBI does not take any measures to ease liquidity in the policy announcement next week," said the treasury head of a Mumbai-based pubic sector bank.
Today, banks borrowed Rs 1.51 lakh crore from RBI at 8.5 per cent under the liquidity adjustment facility. Banks have been borrowing close Rs 1 lakh crore daily since the past month. Market participants said excess holdings under the statutory liquidity ratio fell, since banks have been participating in OMOs. RBI sold Rs 14,000 crore of dated government securities today, including Rs 7,000 crore of 10-year benchmark bonds. According to the revised issuance plan, the government may borrow up to Rs 5.1 lakh crore this financial year.
Overnight indexed swap rates cooled marginally today, though these have remained high because of tight liquidity. Call money rates traded in the range of 8.75-9.4 per cent, before closing unchanged from yesterday's close.
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