Govt bond yields soften as RBI signals scope for further rate cuts

Government bond yields fell six basis points as RBI governor Sanjay Malhotra signalled space for further easing of 25-30 basis points, boosting gilts market sentiment

Government bond yields softened by six basis points on Wednesday after the Reserve Bank of India’s (RBI) Monetary Policy Committee meeting, with market participants saying that RBI Governor Sanjay Malhotra’s remarks about room for easing rates buoyed the gilts market.

 

The yield on the benchmark 10-year government bond settled at 6.52 per cent, against the previous close of 6.58 per cent.

 

“The remarks were dovish as he said that there can be room for rate cuts. The outcome of the policy was better than expected,” said a dealer at a primary dealership. “The current levels of 6.50 per cent and 6.52 per cent (yield on the benchmark 10-year government bond) are expected to sustain. If the level breaks, we might see 7.45 per cent soon,” he added.

 

Malhotra, at the post policy press conference, said that there's room for further decline of another 25 basis points to 30 basis points and the trend should be downward. He said that to support the decline, a number of measures are being considered, including the structuring of primary G-Sec auctions and the tenor of both central and state government issuances. The RBI remains confident that monetary policy transmission has already taken place to a significant extent and will continue to do so going forward.

 

“Only because of monetary policy, it (yield) had decreased by even more, 60 basis points. There have been certain developments after that. The other thing is, 10-year will not move one is to one. For 25-30 basis points (reduction in yields), while there is scope for more, and we feel that it should head downward, a number of measures have been contemplated,” Malhotra said. 

 

“In this regard, including the primary G-Sec auctions will be held, the tenor of these government offerings, not only central government as well as state government, we are quite confident that monetary policy transmission will happen, has already happened to a great extent and will continue going forward,” he added.

 

Market now eyes ₹32,000 crore 10-year bond supply on Friday. Some traders made space ahead of the weekly auction, which capped further fall in yields, said dealers.

 

Meanwhile, the rupee appreciated by 9 paisa to settle at 88.70 per dollar, against the previous close of 88.79 per dollar after the domestic rate panel kept the rates unchanged.

 

Market participants said that state-owned banks sold dollars during the early trade likely on the behalf of the central bank, which contained volatility during the day, said dealers. 

Meanwhile, the rupee appreciated by 9 paisa to settle at 88.70 per dollar, against the previous close of 88.79 per dollar after the domestic rate panel kept the rates unchanged.

 

Market participants said that state-owned banks sold dollars during the early trade likely on the behalf of the central bank which contained volatility during the day, said dealers. 

 

“The INR has witnessed some depreciation accompanied by phases of volatility. The RBI is keeping a close watch on movements of the INR and will take appropriate steps, as warranted,” Malhotra said during the post policy interaction with the media.