Markets jittery over Reddyspeak, yield soars

There is an apprehension in the market about an imminent rate or cash reserve ratio (CRR) hike following RBI Governor Reddy's pronouncements on anti-inflationary measures on Thursday.

According to dealers, the ten-year yield peaked at 8.42 per cent in June 2007 and 8.44 per cent in July 2006. They explained the ten-year yield usually rules high in June-July since the central government moves to cover major portion of its borrowing programme in first half of the financial year.

Dealers said that the market has already discounted a 25 basis point hike in repo rate but a 50 basis point hike might further hurt the sentiment.

CRR is the portion of a bank's total deposit over a fortnight and deposited with the RBI as statutory obligation. Of the total fund to be maintained, a bank needs to maintain at least 70 per cent on any given day of the fortnight.

The bearish sentiment also reflected in the cut-off yields at the auction of the government stock. The impact was seen more on the long-term paper rather than on the medium-term 10-year paper.

The 7.95 per cent 2032 government paper fetched a higher cut-off yield of 8.72 per cent as against the market expectation of 8.65-8.70 per cent. However, the ten-year 8.24 per cent 2018 paper was auctioned at a cut-off yield of 8.2556 per cent, which is lower than the expectation of 8.25-8.28 per cent.

The rupee closed at a high of 42.67/68 due to heavy dollar selling by companies and exporters.