Govt bond yields to stay range-bound

The yield on government securities are expected to stay range-bound ahead of the Reserve Bank of India’s (RBI) annual monetary policy on Tuesday.

With expectations of a repo rate cut by 25 basis points to signal push for growth, bond dealers said the approach would be cautious, waiting for cues from the central bank.

RBI raised its benchmark rate by 3.75 percentage points from March 2010 through October 2011 to rein in inflation expectations.

Market will now also watch for the March inflation data due to be released tomorrow.

Bond yields across maturity spectrum had hardened in response to the huge government borrowings programme lined up for 2012-13. The yield on bond maturing in 2021, the benchmark, moved beyond 8.8 per cent and now have fallen below 8.5 per cent level.

On Friday, the benchmark 8.79 per cent bond due in 2021 closed at 8.47 per cent, higher than the 8.44 per cent at close of trading on Thursday.

RBI is also expected to address concerns over pressure on liquidity.

It may reduce Cash Reserve Ratio (CRR) by 25-50 basis points, releasing more funds into system. It has already cut the CRR by 125 basis points through two tranches since January putting Rs 80,000 crore in the system.

The liquidity deficit has remained above the RBI’s comfort level all through the second half of financial year 2011-12. The RBI injected Rs 74,250 crore into the banking system on Friday today, as against Rs 86,515 crore on Thursday.