CRR, repo rate cut hopes buoy bonds

Government bond prices ended up on Wednesday because investors bet that interest rate cuts across the globe and persistent tightness in domestic liquidity will force the Reserve Bank of India (RBI) to cut the Cash Reserve Ratio (CRR) and even the repo rate further, dealers said.

The most-traded 8.24 per cent, 2018 gilt ended at Rs 104.85 or 7.51 per cent yield-to-maturity compared with Rs 104.30 or 7.59 per cent on Monday. In just two business days, the 10-year rose over Rs 2 on expectations of further liquidity infusion by RBI.

“The market has priced in a CRR cut and a repo rate cut of at least 50 bps in the next three months,” said Piyush Wadhwa, senior vice-president, ICICI Securities Primary Dealership. People’s Bank of China slashed its lending and deposit rates by 27 bps. On October 8, six central banks worldwide, including the US Federal Reserve, had slashed interest rates in a coordinated move to ease frozen credit markets.