Yields rise as RBI keeps interest rates unchanged

Yield on 10-year benchmark bond rose 8 basis points compared with previous close to end at 7.73%

Government bond yields rose on Tuesday as the market had anticipated a further cut in interest rates by the Reserve Bank of India (RBI) in the monetary policy review which did not happen. The yield on the 10-year benchmark bond rose eight basis points compared with its previous close to end at 7.73 per cent. RBI left the repo rate unchanged at 7.75 per cent but decided to cut the statutory liquidity ratio (SLR) of banks by 50 basis points to 21.5 per cent of Net Demand and Time Liabilities (NDTL) with effect from the fortnight beginning February 7.

“The rise in yields was because the market was pricing in some sort of rate cut today. So since that did not happen yields rose. The yield on the 10-year bond may trade in the range of 7.65 per cent to 7.80 per cent before the Budget,” said Ashish Vaidya, ED and head – Trading and ALM (Treasury & Markets), DBS Bank.

SLR is the amount of funds which banks must set aside to invest in government bonds and reduction in the same led to concerns that illiquid securities may be sold by these banks in the market. In the run-up to the monetary policy bond yields had dropped to levels last seen in July 2013.

The rupee on the other had ended strong due to dollar sale by exporters. The rupee ended at 61.68 compared with its previous close of 61.80 a dollar. The rupee had opened at 61.64 and during intra-day trades it touched a high of 61.63 a dollar.

“The rupee is seen trading in the range of 61-62 in the near-term. RBI may ensure that it stays in this range for the near-term,” said the head of treasury of a state-run bank.