CRR cut to weigh on bond yield

The liquidity increase by the 50-basis-point cut in the Cash Reserve Ratio (CRR) and signals on future open market operations (OMOs) will shape the movement on bond yields next week.

Dealers said the CRR cut would bring in about Rs 32,000 crore into system, almost equal to amount pumped in through three OMOs. The Reserve Bank of India (RBI) had cut the CRR to 5.5 per cent, effective January 28.

On Friday, the 10-year benchmark bond yield settled at 8.35 per cent, up three basis points over Wednesday’s closing. For the week, yield on 10-year government bonds rose 18 basis points over last week’s close of 8.17 per cent. During the week, the bonds traded around 8.17-8.35 per cent.

Amid low volumes, bond yields ended higher on Friday, as disappointed traders pruned positions in the absence of a debt buyback OMO by RBI. T S Srinivasan, general manager (treasury), Indian Overseas Bank, said yields could soften if there were clear signals from RBI on conducting more OMOs.

RBI has released over Rs 70,000 crore into the system by buying bonds through OMOs since November.