Bond yields rise to around five-month high on fears of increased supply

Government bond yields rose on Friday amid fears of increased debt supply, with the yield on the benchmark 10-year government bond settling at 6.55 per cent, up 2 bps from yesterday, the highest since March 28.

 

Market participants said that the yield on the benchmark 10-year bond might rise to 6.58–6.60 per cent during the next week.

 

“The overall sentiment in the bond market is down, and the yield (on the benchmark 10-year government bond) might rise to 6.58 per cent and then to 6.60 per cent,” said a dealer at a primary dealership. “Mutual funds were on the selling side,” he added.

 

The yield on the 10-year benchmark government bond has risen 30 bps since the 50 bps cut in the policy repo rate by the Reserve Bank of India's rate-setting panel on June 6.

 

The central government has proposed a simplification and reduction of GST rates by eliminating the 12 per cent and 28 per cent slabs. The proposal will be placed before the GST Council for approval in its September or October meeting.

 

According to reports, the revised structure would primarily feature two slabs, 5 per cent and 18 per cent, along with a 40 per cent slab for luxury and sin goods, covering five to seven items. Less than 1 per cent of items would remain in the 0.25 per cent slab (diamonds) and 3 per cent slab (gold jewellery).

 

Meanwhile, the Reserve Bank of India received bids worth Rs 75,781 crore, against the notified amount of Rs 1.25 trillion, at the seven-day variable rate reverse repo (VRRR) auction amid GST outflows. The central bank accepted the bidding amount at a cut-off rate of 5.49 per cent.

 

Market participants said that the demand at the auction was in line with expectations.

 

“The demand was in line with expectations,” said a dealer at a primary dealership. “We had a GST outflow, and liquidity has come down,” he added.

 

The net liquidity in the banking system was in a surplus of Rs 2.17 trillion on Thursday, according to the latest data from the RBI.