G-Sec yield to stay range-bound

The yield on government bonds are expected to stay range-bound with the Reserve Bank of India (RBI) signalling intent to conduct more open market operations (OMOs) to buy bonds and easy liquidity pressures.

A treasury head with a large public sector bank said, “With RBI’s intention being evident, yields would remain range bound. The yield on the 10-year benchmark might move between 8.15 and 8.20 per cent next week.”

On Friday, the G-Sec market sentiment had turned negative, seeing higher than expected cut-off yields at the auction. The benchmark 10-year security (8.79 per cent 2021) ended the day at Rs 104.13 levels, implying a yield of 8.17 per cent. The closing yield on Thursday was 8.13 per cent.

The market was not apprehensive of sharp volatility and present indications pointed towards stability in the next week, said a treasury official with another Mumbai-based public sector bank. Yields are down to pre-policy levels, below 8.20 per cent. They had shot up above 8.35 per cent on escalation of liquidity pressure.

The systemic liquidity deficit has deteriorated sharply. The daily average net liquidity injection rose to average Rs 112,800 crore during November 2011-January 2012, from Rs 46,000 crore in April-October 2011, according to ICICI Bank’s market-review report. This is primarily due to a seasonal rise in currency in circulation and foreign exchange market intervention.

RBI, till date, has bought back securities worth Rs 71,900 crore. It has also cut banks’ cash reserve ratio by 50 bps to 5.5 per cent to ease liquidity.